The fourth quarter of 2018 was uncomfortable. After an unprecedented period of calm on the financial markets in 2017, increased global uncertainty and growing cyclical concerns caused increased volatility in the markets.

Translating into one of the worst quarters of the last decade, few asset classes remained unscathed as the New Year was ushered in.

Discussions at our Investment Committee reflect this shifting landscape. As ten years of robust economic growth shows signs of strain, the global backdrop begins to crack under the pressure.

Growth in the Eurozone and Emerging Markets has disappointed and even the US, which seemed immune to global pressures for the majority of 2018, flashed warning signals from the manufacturing and transport sectors by the end of the year, although employment levels remained strong.

Investors will have to navigate both an uncertain backdrop and cyclical pressure in 2019, but there will be opportunities for growth. If Central Banks manage their monetary policy programmes well, trade tensions ease and Brexit negotiations lead to a solution that’s welcomed by markets, financial markets could rebound.

Why now?

Most will recognise that tensions on the global stage didn’t emerge over night. Yet financial markets chose to ignore this unpredictable backdrop for a number of consecutive quarters, favouring unusually low levels of volatility instead.

A complex picture has now emerged. Growth concerns were exacerbated by the medley of political tension, triggering an accelerated repricing of equities in the fourth quarter, shifting valuations south.

Equities had previously traded at historically lofty valuations, supported by strong earnings growth. However, this earnings momentum has shown signs of reaching its peak, just as equity valuations have slumped.

The Brexit countdown is entering its final weeks, and after close to two years of negotiating, the potential outcomes are still too broad to say with any certainty.

In the Eurozone, Italy has faced budgetary headwinds from the European Central Bank (ECB) and violent protests erupted in France against the cost of living, calling for President Macron’s resignation.

Across the pond, the midterm elections handed control of the House of Representatives back to the Democrats for the first time in eight years, with the paralysis of the US budget indicating that the next year is likely to be a difficult one for President Donald Trump.

Trade issues escalated over the course of the year, the impact of which are already being felt on both sides of the commercial spat – headlines around the impact on US farmers were popular in the quarter.

The costs of shipping from China to the United States rose and American giant Apple, a symbol of the decade-long bull market, revised its Chinese sales forecasts, with painful consequences on the stock market.

Then there was the arrest of a senior executive of Chinese technology champion Huawei at the request of the American authorities, all whilst Trump ate dinner with Xi Jinping at the G20 summit.

Trade negotiations are ongoing and whilst there may be some progress on trade, other issues like Intellectual Property protections may be tougher to resolve.

Brexit

Uncertainty in the US managed to knock Brexit off the front pages for a couple of weeks, but it’s still going to be a major event for the first quarter of 2019.

With less than 100 days on the calendar until the UK is set to leave the European Union, the outlook is no less uncertain. The story changes by the hour: whether it’s the date of the Parliament vote, Theresa May’s attempted No Confidence coup, the details of her deal, or the opposition’s response to it. The uncertainty is very difficult for financial markets to price in.

The consensus is that a No Deal will be bad for markets and the economy, and there is a large bias against a No Deal. We see this reflected in sterling, which depreciates when the risk of No Deal increases.

If we do see the deal passed, we’d expect financial markets to take that quite positively, as it removes some of the uncertainty that we’ve had to live with over the past few months.

Since the referendum result was announced, we have been adjusting portfolios to limit the downside and capture as much upside as possible in the final Brexit outcome.

We’ve maintained our low exposure to UK-focussed risky assets and have taken steps to remove our vulnerability to currency volatility. If you have any questions about how your portfolio is prepared for Brexit, get in touch with your Investment Consultant, who will be happy to talk it through.

US Monetary Policy

Rarely is one quarter so heavily directed by one theme, yet America’s Central Bank, the Federal Reserve, had financial markets hanging off its every word in the final three months of 2018.

During periods of uncertainty and tension, investors look to Central Banks to support the economy with loose monetary policy to promote expansion – although it’s not in the Fed’s job specification to manage market volatility.

Yet global policy makers want to return to normal monetary policy after an unprecedented programme of policies designed to promote economic expansion following the financial crisis.

The Fed hiked interest rates in December’s final meeting of 2018, and although the move was expected, the unanimous vote spoke to investors’ nervous disposition.

The markets had prepared for four interest rate hikes in 2019, yet a shift in the political and economic backdrop translated into a softer outlook for monetary policy.

In response to market volatility, Federal Reserve Chair Jay Powell reassured investors that the Central Bank wasn’t prepared to complete its interest rate programme at all costs, and would listen to the wider economic scenario before making any concrete decisions. Fed members now expect two rate hikes in 2019, down from three in October.

The market isn’t as convinced, however, with the probability of no rate hikes in 2019 jumping from below 20% in October to close to 80% probability at the time of writing.

The question is whether the Fed will fall in line with the market. For equity markets to recover, the Fed will probably need to signal that it will pause its monetary policy programme.

Fourth-quarter performance

Suffering from one of the worst quarters for ten years, it’s difficult to find many winners in this environment.

Developed market equity slipped 13.3% in the fourth quarter, accelerated by a 7.6% decline in December alone. The fourth quarter performance unwound the market’s recovery from volatility earlier in the year, with the sector ending the year down 8.2% in dollars.

Compared to the sharp falls experienced in early 2018, Emerging markets held up a little better, although still ended the quarter down 7.6%.

Although interest rates still remain at historically low levels, government bonds were stable, confirming their attractiveness as a diversification tool amid uncertainty. The main bond indices of Europe, the United States and Japan closed the year on a positive note, beating all expectations.

Investment Grade Bonds benefited most from the fall in interest rates, closing the quarter almost unchanged.

It was a different story for corporate debt, however, which suffered from the risk-off environment.

Economic weakness did cause demand for oil to fall, removing the support for its price. The commodity index as a whole lost 10.5% in dollars over the quarter.

Chart 1

Is this level of volatility normal?

Global equities slumped in the fourth quarter, but is this behaviour investors should expect from the stock market?

After two years of calm, it might seem rare and will probably feel uncomfortable, but, in reality, markets have fluctuated like this before, and will do so again in the future.

Take a look at the distribution of historical returns from the S&P 500 in Chart 2, on a monthly, quarterly, and annual basis.

The black line shows the distribution of monthly historical returns, highlighting performance from October, November and December.

If you can imagine the 91 year lifespan of the S&P 500 fits into 100 months, December’s performance falls into one of the three worst performances, with October’s performance falling into the bottom six. This won’t be too much comfort, but it should reassure investors that these market movements are not unparallelled.

Chart 2

The quarterly performance is also interesting. The S&P 500 slipped 14% in the fourth quarter, but as this is in the bottom 7% of quarterly performances, however, investors should expect three or four quarters of similar returns across a ten-year time horizon.

Chart 3 and Chart 4 put the fourth quarter and 2018 performance of the S&P 500 into simple context. Fourth quarter performance was difficult, yes, but investors have sat through similar scenarios before.

Chart 3

Chart 4

Volatility on the S&P 500 is measured by the VIX, and is often used as a benchmark for global equity markets. The VIX sat at historically low levels for the entirety of 2017 and early 2018.

Looking at Chart 5, you can see that such low levels of volatility is unusual. Whilst the return of price fluctuations will have been a rude awakening for many, this environment has been seen before. In fact, 45% of quarterly volatility levels have been higher since 1990 than what was seen in the fourth quarter of 2018.

Give yourself the elusive edge

During uncertainty, many promote timing the market to avoid volatility, yet this tactic comes with its own financial health warnings.

Instead, it’s ‘time in’ the market that can provide you with the elusive edge as an investor to maximise your returns.

You can see from Chart 6 that the probability of loss when investing in Developed Equities given your time horizon falls dramatically depending on how long you are invested.

The longer you’re invested, the less likely you are to see losses in your portfolio.

If you’d like to discuss the performance of the model portfolios or want to know the thinking behind the Moneyfarm investment strategy, please call your Investment Consultant on 0800 4334574, or book a call.

As Brits begin to grow tired of the never-ending supply of cold turkey sandwiches and Christmas reruns on the TV grow stale, financial markets are winning back attention.

Brexit may have been temporarily banished from the front pages, but growing pressure in the US has taken its place – a combination of trade tensions, a partial government shutdown and another Presidential attack on Central Bank Chair Jay Powell.

Financial markets are having a tough time navigating this landscape of short-term uncertainty as we move into 2019, and this has translated into a pick-up in volatility in both directions.

A President under pressure?

What we can see reflected in the markets is a President under increasing pressure. Democrats will take control of the House at the start of 2019 and his foundation is closing down after allegations of illegality.

An independent Central Bank isn’t feeding quite into the President’s plans and his threats to fire Chair Jay Powell caused markets to fluctuate – even if he doesn’t actually hold the power to do so. Donald Trump has even been persuaded to shut down the government in an attempt to get his border wall funded.

On another level, there is a question around growth. The US economy grew very nicely in 2018, juiced by the Republican tax reform. But as we go into 2019, higher interest rates have helped to raise uncertainty about just how well the economy will perform next year.

Economic data is more of a mixed bag than it was earlier in 2018, at least compared to expectations. Trump has done his best to pressure the US Federal Reserve not to hike rates, but the Federal Reserve governors have so far ignored him.

This has left financial markets with a difficult conundrum. On the one hand, markets are concerned that the Fed is hiking too aggressively in the face of a weakening economy; on the other hand, Central Bank independence is usually taken positively by financial markets – after all, electoral cycles can drive short-term decision-making.

Stepping into the New Year

Trump has cited a strong equity market as proof of his Presidential expertise, so he’d certainly like to see a rally. He’s already urged investors to buy the dip and acknowledged by proxy that he can’t do much to get rid of Powell afterall.

But volatility is uncomfortable and the government shut-down needs to be resolved – although neither side looks keen to budge just yet. That isn’t great for financial markets and the stakes will only get higher. At some point US politicians will need to raise the debt ceiling (2 March 2019 seems to be an important date in this process). The question is whether Trump is enough of a gambler to risk a US default to get his wall built.

But volatility is also a response to underlying economic concerns, particularly around US monetary policy. Currently, the Fed is guiding towards two rate hikes in 2019, down from three prior to the last meeting, but that hasn’t been enough to reassure financial markets yet.

At Moneyfarm, we expect they’ll do less than that in 2019, as we see signs of slightly weaker economic growth start to show.

Moneyfarm portfolios

At the last portfolio rebalancing in October we cut risk and we’re happy with this decision. Markets may begin to show some signs of stability over the next few days, but we’re still expecting that 2019 will be a difficult year for risky assets and geopolitical noise will likely still have the power to drive markets.

These short-term fluctuations may be uncomfortable, but we firmly believe one of the most powerful tools you can have in your investor arsenal is time.

Research from asset manager JP Morgan highlights that it’s time in not timing the market that can help maximise returns over the long run.

The best and worst days in the market are usually clustered around the same time¹, it’s easy to miss the best days of performance by trying to avoid the worst. And this can have a real impact on your overall portfolio performance.

For example, if you’d invested $10,000 on 1 January 1998 and left it tracking the S&P 500 until the 30 December 2017, your portfolio would be worth $40,135. This is more-than double the $20,030 you would have if you missed just the 10 best days in the market. Miss the best 60 days and performance slips to -6% to just over $2,834.

To maximise your returns during uncertainty, it’s important your portfolio is built to reflect your investor profile, appetite for risk and time horizon. At Moneyfarm this investment advice continues for as long as you invest with us so your portfolios changes and you do. You can check on your investor profile and portfolio through our Advice Centre on your account.

If you’d like to talk about the performance of your portfolio, your asset allocation, or have any questions about the market, book a call with one of our Investment Consultants today.

]]>https://blog.moneyfarm.com/en/financial-markets/financial-markets-richard-flax-moneyfarm/feed/0Start the new year right and get Moneyfarm to review all your investment portfolios for freehttps://blog.moneyfarm.com/en/investments/investment-portfolio-review-free/
https://blog.moneyfarm.com/en/investments/investment-portfolio-review-free/#respondFri, 21 Dec 2018 17:07:08 +0000https://blog.moneyfarm.com/en/?p=7044

At Moneyfarm, we’re passionate about helping individuals make better decisions with their money. That’s why we offer a free review of all portfolios, including ones from outside of Moneyfarm, to help you see all your investments in one place.

Whether you’re investing for specific goals or just want to grow your money for a more secure financial future, understanding what you have and how much you pay in fees is key to making the most of your money.

However, the complexity of the financial world means that instead of empowering individuals, investing can actually leave many people feeling overwhelmed.

Complicated fee structures, confusing account statements and bewildering performance measurements can make it difficult for investors to know where to start when wanting to take control and make their money work harder.

If you were to have a few different accounts with different providers, this can be even more off-putting and it becomes easier to push it to the bottom of the to-do list.

Investors can easily lose track of their investments, which can mean they end up with a portfolio that is very different to the one they originally set-up if they don’t have access to ongoing investment advice and fully-managed portfolios that are adjusted to reflect this. Investors can end up with a return that’s much lower than expected or a riskier plan than is suitable for them.

At Moneyfarm, we’re passionate about helping individuals make better decisions with their money. That’s why we offer a free review of all portfolios, including ones from outside of Moneyfarm, to help you see all your investments in one place.

What happens in your portfolio review

After an initial consultation that can be done either in person, over the phone or via email, your dedicated Investment Consultant will do all the hard work for you.

You’ll get a personalised review of all your investments, no matter which provider you use, whether in an Pension, ISA, or General Investment Account.

Your Investment Consultant will then go through your personalised report with you, again either in person or on the phone, to ensure you understand what this means for your investments and your ability to reach your financial goals.

To get started, all you need are your account statements, fund factsheets or Key Investor Information Documents. Moneyfarm will do all the rest for you.

Don’t worry if you don’t have these documents or don’t even know what they are, Moneyfarm can, with your authorisation, get in touch with your provider to get this information.

Once you’ve got your report, you’re not obligated to do a thing.

Putting all your investments in one place

Armed with clear and concise information on your investments, you can make a more informed decision on what to do next. There are benefits to having investments with different providers, but combining your portfolios together could make your investments easier to manage and help you save on fees. With Moneyfarm, transferring your pensions and ISAs is easy and free.

There are a number of reasons you might think about transferring your old pension and ISAs to a new provider, or consolidating your investment portfolios into one place.

Transferring all your old portfolios into one pot can help make your investments more efficient. Instead of analysing 11 different accounts to see how much you’ve got and understand the costs and fees you’re paying out, you just have to log in to one account.

It might also be cheaper. Many wealth managers have a tiered pricing structure that decreases the more you invest with them. At Moneyfarm you pay 0.7% on anything up to £20,000, 0.6% on anything between £20,000 and £100,000, 0.5% on anything between £100,000 and £500,000, and 0.4% on anything above £500,000.

Spreading out your investments into smaller pieces means you’re probably in the most expensive price band, whereas consolidating all your portfolios into one could take you into a cheaper band above.

Having everything in one place means you can easily see what you’ve got and whether you’re making the most of your money. And if you’re not on track with your goals, whether that’s to help your children on the property ladder, your once in a lifetime holiday or dream retirement, you can also easily identify and make the necessary adjustments you need to get there.

If you’d like a free review of the investments you have outside Moneyfarm, or have any questions about the free service, email harry.rowe-jones@moneyfarm.comwith the subject line ‘I’d like to discuss a free Portfolio Review’.

Harry or your dedicated Investment Consultant will then conduct extensive analysis of the cost, quality and overall diversification of your investments, to keep you on track.

This time of year is renowned for reflection, and we certainly look back at the last 12 months with pride. It’s been a busy year at Moneyfarm, and we’ve reached a number of exciting milestones as transitioned into a new phase of growth.

This time of year is renowned for reflection, and we certainly look back at the last 12 months with pride. It’s been a busy year at Moneyfarm, and we’ve reached a number of exciting milestones.

We launched the Moneyfarm Pension, secured a £40 million funding round, opened our Advice Centre, and even expanded into Germany, further cementing our position as a pan-European leader.

Moneyfarm Pension

We launched the Moneyfarm Pension in early 2018 to provide investors with financial security in retirement through the benefit of easy transfers, simplicity and low-cost investment advice.

Moneyfarm’s quick, simple and managed transfer process provides investors with a powerful tool to understand how much they have in their pension and put plans in place to reach retirement goals.

The technology that sits behind the pension product allows us to bring a cost-effective pension solution to those that have been locked out of the traditional wealth management space due to the numerous barriers to entry.

Unlike some pension products, basic tax relief is automatically added to your pension contributions and flexi-access drawdown is a standard feature. This provides investors with the freedom to manage their retirement income according to their needs.

Expansion into Germany

In November, Moneyfarm acquired German digital wealth manager, vaamo. Marking our entrance into our third market, we’re combining our award-winning investment services with vaamo’s foothold in the German market to provide more personalised and innovative investment advice solutions across Europe.

Moneyfarm’s acquisition of vaamo marks an exciting new phase of growth, as we look to combine our European experiences to provide more personalised and innovative investment advice solutions internationally.

Securing the largest funding round of its kind

Moneyfarm secured one the largest European funding rounds in the first half of the year, according to a KPMG report. The £40 million investment is being used to further expand our vision through our advisory service – including goal based investing – products and investment proposition.

The funding round was led by Allianz Asset Management, which has increased its minority stake in Moneyfarm after first investing in us in 2016. Also joining the investment round were venture capitalist firm Endeavor Catalyst and Italian finance firm Fondazione di Sardegna. Further funding from existing backers include private equity firm Cabot Square Capital and initial investor United Ventures.

The funding round marked an exciting phase for Moneyfarm as we expand our customer base through a focus on greater personalisation of the investment advice we give to help support and guide customers along their wealth journey.

We won prestigious awards

2018 was a big year for our awards cabinet, with two prestigious awards taking centre stage.

We won Innovation of the Year at the British Bank Awards, the most widely reporting banking awards in the UK. Moneyfam was shortlisted for the award alongside Wealthify, WiseAlpha, Habito, True Potential Investor, and Revolut.

We were especially excited to win this award as all entrants are subjected to a rigorous judging process based on competitiveness of price and structure. Shortlisted firms are then judged by a panel of over 200 readers who mystery shop each company and benchmark the quality of service provided in each product area.

We’re thrilled to win such a prestigious awards, and excited to see customer support for our product. Technology sits at the heart of our product. However we believe that in combining technology with human empathy and financial expertise we deliver something truly innovative – delivering cost-effective advice and investment solutions to every user.

Merry Christmas from everyone at Moneyfarm

Thank you for choosing Moneyfarm as the financial companion to help you reach your goals. I’m proud of everything the Moneyfarm team has achieved this year, as we continue to empower individuals to make the right decisions with their wealth to ensure financial security in the future.

Marking our entrance into our third market, we will combine our award-winning investment services with vaamo’s foothold in the German market to provide more personalised and innovative investment advice solutions across Europe.

Today we’re excited to announce that we’ve acquired German digital wealth manager, vaamo. Marking our entrance into our third market, we will combine our award-winning investment services with vaamo’s foothold in the German market to provide more personalised and innovative investment advice solutions across Europe.

Over the last four years, vaamo has built both a successful direct to consumer and B2B offering. Partnerships include leading digital bank N26, and 1822direkt, the online business of one of Germany’s largest savings banks.

For Moneyfarm, the acquisition allows us to leverage vaamo’s strong foothold in the German market to accelerate our entrance into Germany, which is already home to the world’s top savers – the average household saving 9% of their income.

A pan-European leader

The acquisition also presents the opportunity to expand the Moneyfarm business proposition across Europe for companies and financial institutions looking to offer digital investment advice on fully-managed portfolios to their employees or customers.

This acquisition puts both Moneyfarm and vaamo in a strong position to expand, pooling expertise in certain areas such as product development to help customers grow and protect their wealth.

Both companies will continue to service their individual customer bases, and vaamo will retain its brand name,as they determine how the two companies can work together.

Moneyfarm CEO and Co-Founder Giovanni Daprà said: “vaamo’s strong foothold in the German market and established B2B offering made them an attractive acquisition to further cement our position as a pan-European investment provider. Their shared preference for providing regulated investment advice, over an execution-only service, is in line with our investment ethos and was a key consideration in the process.”

Shared vision

Thomas Bloch and fellow Co-Founder and Co-CEO Oliver Vins will join Moneyfarm’s Executive Committee to take on broader responsibilities with Moneyfarm and bring their expertise as founders to the table.Thomas will head the German business as well as Moneyfarm’s B2B activities across Europe. Oliver Vins will become Head of Product at Moneyfarm.

Daprà continues: “Throughout the acquisition process we’ve been really impressed by the team Oliver and Thomas have built. We’re excited to bring the two companies together to strengthen our presence across Europe.”

Thomas Bloch, Co-Founder and Co-CEO of vaamo, explains: “Moneyfarm’s acquisition of vaamo marks an exciting new phase of growth for both companies, as we look to combine our European experiences to provide more personalised and innovative investment advice solutions internationally.”

The transaction is subject to regulatory approval by German supervisory authority BaFin.

If you have any questions about Moneyfarm’s acquisition, please get in touch with one of our Investment Consultants here.

Saving for retirement can be notoriously difficult, so it’s important savers have access to the right tools to achieve their financial goals. Yet savers leave around £400 million in lost pensions each year. That’s why Moneyfarm has partnered with MyFutureNow to help you find any old pensions.

The average Brit has 11 jobs in their career. In an era of autoenrollment that’s 11 different pension pots to keep on top of, so it doesn’t become difficult to lose track of what you’ve got and where it’s held.

Knowing exactly what you’ve got today is the first step to reaching your financial goals. You don’t want have less income in retirement or have to work for longer than you wanted because you lost track of your hard-earned pension savings.

Moneyfarm and MyFutureNow find lost pensions

Don’t worry if you’ve misplaced any important information about your pension – all you need to get started is know your employer and when you worked there. If you know who your pension provider is then even better.

MyFutureNow will use this information to find any lost pensions for you and transfer them to your Moneyfarm Pension for free.

This search would usually cost between £35 to £90, plus 0.15% of the amount transferred, depending on the number of transfers completed. We’re committed to helping you build a financially secure future, so will take on this cost for you.

To use MyFutureNow to find any lost pensions, visit the website and get started today.

Benefits of consolidating your pension pots

There are a number of reasons you might think about transferring your pension to a new provider, or consolidating your old pensions into one place.

Transferring all your old pensions into one pot can help make your pension savings more efficient. Instead of analysing 11 different accounts to see how much you’ve got and understand the costs and fees you’re paying out, you just have to log in to one account.

It might also be cheaper. Many wealth managers have a tiered pricing structure that decreases the more you invest with them. At Moneyfarm you pay 0.7% on anything up to £20,000, 0.6% on anything between £20,000 and £100,000, 0.5% on anything between £100,000 and £500,000, and 0.4% on anything above £500,000.

Spreading out your pension into smaller pieces means you’re probably in the most expensive price band, whereas consolidating all your pensions into one could take you into a cheaper band above.

Having everything in one place means you can easily see what you’ve got and whether you’re on track for the right retirement. And if you’re not on track to get the retirement income you were hoping for, you can also easily identify and make the necessary adjustments you need to get there.

If you have your pensions in different places, this can be more difficult.

Transferring defined benefit and defined contribution pensions

The pensions industry is more flexible than ever before, but it’s important you check whether you’ll pay a transfer fee to move your money to a new pension pot or whether you’ll lose any guaranteed benefits.

Once you ask MyFutureNow to find your lost pensions, they will screen each pension. MyFutureNow will initiate the transfer if the pension is eligible, if not, MyFutureNow will let you know. In the absence of advice, you should not transfer a defined benefit scheme.

There are also some rules about transferring defined benefit and defined contribution pensions to be aware of.

Defined benefit pension

The FCA believes defined benefit pensions offer more security than a personal pension, as they offer you a guaranteed income throughout retirement and benefits to a spouse or partner if you die.

These schemes are often index-linked to offer a form of inflation protection throughout retirement.

Not everyone with a final salary pension can transfer it.

You’ll need to get a ‘cash equivalent transfer value’ (CETV) from your pension provider before you transfer to value how much your pension is worth and whether you should transfer to a personal pension.

There are pension transfer calculators available that calculate whether your CETV represents good value.

If your pension is worth over £30,000, you’ll need to have a consultation with an Independent Financial Adviser before you transfer, otherwise many personal pension providers won’t accept you under regulation.

Defined contribution pension

You can find your pension transfer value from your annual statement or from your pension provider.

Most company pension plans will allow you to transfer to a personal pension or other workplace scheme without speaking to a financial adviser, although this isn’t recommended if you’re unsure.

There can be some fees attached to transferring set by other providers, so make sure you’re aware of all charges before you transfer, as this could make a big impact on larger pension funds.

Don’t let your pension savings become a statistic. Let Moneyfarm and MyFutureNow find your lost pensions and provide you with the investment advice to keep you on track with your retirement goals. Get started today.

Kushal Patel, 31, owns a pharmacy in Cambridge with his wife. Thanks to Moneyfarm’s self-employed pension benefits, financial security in retirement doesn’t have to be a bitter pill to swallow when you’re your own boss.

Kushal Patel, 31, owns a pharmacy in Cambridge with his wife. Thanks to Moneyfarm’s self-employed pension benefits, financial security in retirement doesn’t have to be a bitter pill to swallow when you’re your own boss.

When you’re self-employed, saving for retirement can be even more difficult. You’re left without employer contributions, someone to pick your plan for you, the benefits of auto enrolment, and you also have to navigate irregular income patterns.

Saving for the future should be easy, but it’s not uncommon for the self-employed to feel ignored by the pension industry.

At Moneyfarm, we provide cost-efficient investment advice and discretionary management on our target date pension, and the ability to make your pension contributions through your business for financial flexibility.

When Kushal Patel, 31, was looking for a pension provider, he knew he needed to invest in his pension through his business, although found it wasn’t widely common feature across the industry.

Kushal already had an ISA, where he can watch his investments grow tax-free.

Yet, as the government wants to encourage people to save for their retirement, the tax benefits of personal pensions are even more generous.

Kushal is able to contribute to his pension from his company’s pre-tax profit. But he also pays into his pension with personal contributions, which means he gets tax relief relative to his income tax band.

He gets the initial 20% basic rate immediately when he adds funds to his Moneyfarm account. If he is eligible for any further tax relief (higher is 40% and additional is 45%) he has to go through HMRC.

Key self-employed pension considerations

Interestingly, Kushal wasn’t thinking about his retirement when he starting looking for a digital wealth manager. The pharmacist was looking for the most tax-efficient vehicle to invest his money in for the future.

A good researcher, he found reviews and articles useful for getting his head around financial jargon and options available to him. Kushal also wanted his pension provider to have a good track record, and to be transparent with performance, his investments and crucial information.

This isn’t Kushal’s first pension. He had a workplace pension with his first employer, but he found it difficult to be engaged with his pension when he got just one statement a year.

Fresh-faced from university, he admits he was too young to pay any serious attention to his pension at the time. Today Kushal is much more engaged with investing for his future, and is able to check in with performance, fees and read the blog wherever and whenever he likes.

Transferring old pensions

It wasn’t until he had bought his first pharmacy in Cambridge with his wife and it had become financially stable that he started to look at investing for his family’s future.

Consolidating all his old pensions to Moneyfarm, it made sense for Kushal to have all his pensions in one place as he juggles working long hours at the pharmacy with family time.

Not only is it easier to manage, but he can also understand how much he is paying in fees which is crucial to get the retirement income he deserves later down the line.

His research included comparing the cost of different digital wealth managers, and he found that Moneyfarm’s tiered pricing structure makes it more cost-efficient to invest large sums in the one place.

He’s got other investments feeding into his retirement income, including a plan to expand his pharmacy business. He also has buy-to-let property which, up to now, he’s found easy to manage.

Self-employed retirement goals

Having goals for retirement is important. By painting a picture of your ideal lifestyle, you can calculate how much you’re going to need and then create the right plan to get you there.

Kushal and his wife want to have a comfortable retirement, with enough of an income that he doesn’t need to worry and he can provide for his family.

“I want to retire at 50, but I know realistically that’s not going to happen,” Kushal laughs. “I’d like to be semi-retired by the time I’m 55, working one or two days a week.”

Kushal is a man with a plan, and it looks like he’s certainly on his way to reach his goal. He’s working hard to pay off his mortgage in 10-15 years and is buying a second business.

Self-employed saving habits

The way Kushal thinks about saving is different now he’s self employed. Without a stable income, Kushal knows that his income is driven by the success of his business. This can be a lot of pressure, but is one he deals with well.

For Kushal, the biggest barrier to saving in a pension was waiting for his business to be financially stable enough for him to start thinking about the future financially.

When asked what one piece of advice he would give himself before he became his own boss, Kushal says: “I would tell myself not to worry about the initial cashflow in the business, it all takes at least six months to work itself out. However I remember having many sleepless nights about two months after taking over wondering where all the money was going.”

Whilst performance is a crucial factor, he isn’t concerned by recent volatility. He knows markets fluctuate by their very nature and shouldn’t be a problem over the long-term.

As Brexit negotiations reach the final stages, it’s still uncertain what the final outcome will be. Kushal isn’t too worried about the impact of Brexit on his pension investments given their long-term nature, but the impact Brexit could have on his business is his primary concern. For now he’s just having to wait and see how talks progress.

For now, Kushal is putting what he can in his pension as he works hard to pay off his mortgage and expand his business. When his loans are paid off and his income increases significantly, he’s going to funnel most of this into his retirement investments to ensure he’s on track to achieve his goals.

One thing he has had to get used to as his own boss is saying goodbye to two week holidays. He now tries to go away twice a year for a week – but it will all be worth it if he can be semi-retired at 55.

]]>https://blog.moneyfarm.com/en/pensions/selfemployed-remedy-tax-efficient-investting-moneyfarm-pension/feed/0When can I retire if I was born in 1954?https://blog.moneyfarm.com/en/pensions/pension-when-retire-born-1954/
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Knowing when you qualify for the State Pension can help you plan your financial future and achieve a better quality of life in retirement.

If you were born in 1954, you can retire and qualify for the State Pension when you’re over 65, but by taking control of your pension savings early enough, you might not have to wait for the State Pension to retire.

Yet complicated pension rules are vulnerable to change, so it can be difficult to keep up with the evolving landscape. Not knowing something as simple as when you qualify can disrupt retirement savings plans, impact how much you have for retirement, or even delay when you hang-up your working boots.

Currently most people can access their pension savings from the age of 55. You can then decide to take a 25% tax-free lump sum, or keep it invested in the market. Whilst many would like to retire at the age of 55, an extra ten years of saving into your pension could make a real difference to your quality of life when you retire.

When will I get my State Pension?

The State Pension is different to personal or workplace pensions. Once you hit State Pension age, the government will pay you a regular income throughout your retirement – as long as you’ve built up the required number of years of National Insurance contributions.

You can use the tool on the government website to check when you’ll reach State Pension age, your pension credit qualifying age and when you’ll be eligible for your free bus pass.

If you were born on 1 July 1954, your State Pension age is 65 years, 8 months and 5 days. This means you’ll be eligible for your State Pension on the 6 March 2020.

Is there a difference for men and women born in 1954?

The State Pension age has been transformed since 2010, when it was widely accepted that men would retire later than women. This has been reformed, with the female State Pension age rising to 65 from 2010-2018, and then 66, 67 and 68 for both men and women.

Two months before you reach State Pension age, you’ll get a letter telling you what to do. At this point, you can decide to either take your State Pension or delay it.

By deferring your State Pension, you could increase the amount you get as a weekly income when you come to claim it. The extra amount is paid with your regular State Pension payment.

As long as you defer for at least nine weeks, your State Pension will increase each week you defer. For every nine weeks you defer, your State Pension increases by the equivalent of 1%. This works out to just under 5.8% every full year.

How much State Pension will I get?

You’ll be able to claim the new State Pension if you were born in 1954 – in fact you’ll get the new State Pension if you’re a man born on or after 6 April 1951, or a woman born on or after 6 April 1953.

You’ll get £164.35 a week if you’re entitled to the full payment, which is over £8,500 a year. The actual amount you get depends on your National Insurance record.

You should get your State Pension within five weeks of reaching State Pension age. The day of the week you get your payments depends on your National Insurance Number.

00-19 – Monday

20-39 – Tuesday

40-59 – Wednesday

60-79 – Thursday

80-99 – Friday

Will the State Pension be enough?

Experts suggest you’ll need two-thirds of your final salary to maintain your lifestyle in retirement, and the reality is that you probably won’t be able to rely solely on the State Pension. The average retired household had a mean disposable income of just over £26,000 in the 2016/17 financial year, figures from the Office for National Statistics shows.

The State Pension is currently guaranteed by a triple lock, which means the amount you get in pension income will rise each year by inflation, average earnings, or 2.5%, whichever is higher.

This is an expensive guarantee, however, and could change in the future as the government attempts to deal with a growing pension deficit.

The State Pension is certainly a good supplement to the retirement income you generate from a personal pension, but it’s important you ask yourself whether you can comfortably rely on this during retirement.

Regular investment plans for investors

The two golden rules of saving for retirement are start as early as possible and save as much as you can. But how do you know if you’re doing enough to be on track to have the retirement you want?

Moneyfarm has created three regular investment plans to help investors understand whether they’re on track to get their desired retirement income. These savings plans of £400 a month, £800 a month and £1,600 a month, net of tax relief or employer contributions, fall well-within the top annual allowance threshold and represent contribution levels reflective of different life stages.

Some corporate schemes offer generous top-ups to pension contributions, and it may be worth taking advantage of these first.

As you get older, your priorities change and some of your big outgoings will stop – you’ll pay your mortgage off and your children will become more independent. You should look to put as much of this extra cash into your pension to boost your retirement income.

By setting aside this much each month you could be on track to a comfortable retirement income in less time than you think.

According to the FCA, it’s reasonable to expect that you can earn an annualised return of at least 5% from a balanced and diversified portfolio over the long term. If you assume 5% is your return, you can then withdraw 5% from your pension each year. Theoretically, you’ll never deplete the nominal value of your pension.

That means that for an annual income of £25,000, you’ll need a pension pot worth £500,000. For £37,500 a year you’ll need £750,000.

When calculating these numbers, we assumed you would have invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds.

If you’d started investing in a geographically diversified 60/40 model portfolio in 1990 and continued to today, we worked out that your money would have grown by an annualised 7.5%.

We’ve also calculated this rate of growth for our regular savings plans below, along with the FCA’s more conservative 5% growth estimate. These numbers also include an annual fee of 1% and include the impact of a 2% rate of inflation on the value of your savings pot.

How to plan for retirement

By taking control of your pensions savings plan early enough, you can have more flexibility over when you retire. Follow these four simple steps and get a step closer to getting the retirement you deserve.

Get cost-efficient investment advice – Building the right portfolio that reflects your goals, your financial background and appetite for risk can be difficult to get right. Cost-efficient investment advice can help you make the right financial decisions for your future.

Invest in a pension that changes to reflect you – Priorities change over time and it’s important your investments reflect that. At Moneyfarm we regularly run our suitability algorithms to ensure your investments put you in the best position for success. If they don’t we’ll match you with the portfolio that does. This is all free of charge, and part of our ongoing commitment to help you reach your goals.

Consolidate your pensions – It can be difficult managing a number of different pensions. By transferring old pensions into one place you can lower costs and understand what you have better. By knowing the value of your pension you can make the necessary adjustments to reach your goals. Transfer to Moneyfarm for free and we could pay your exit fees at your current provider for you.

Make the most of generous tax benefits – Basic tax relief means that most people get a 25% top-up to each contribution they make from the government. The tax relief system encourages Brits to save for their future, providing basic rate tax payers with 20% tax relief, higher rate taxpayers with 40% and additional rate taxpayers with 45% tax relief. If you fall in the higher or additional bucket, make sure you apply for your further relief through HMRC to make the most of your money. Read more.

]]>https://blog.moneyfarm.com/en/pensions/pension-when-retire-born-1954/feed/0Managing the present and the future with a young familyhttps://blog.moneyfarm.com/en/pensions/managing-the-present-and-the-future-with-a-young-family/
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When you’ve got a young family, you want to give them the best start in life – this includes providing them with financial security. But it can be difficult knowing you’re doing the right things for your family when you feel you’re just finding your legs on the financial markets yourself. That’s why we […]

When you’ve got a young family, you want to give them the best start in life – this includes providing them with financial security. But it can be difficult knowing you’re doing the right things for your family when you feel you’re just finding your legs on the financial markets yourself.

That’s why we were so happy to meet Michelle over a year ago. She had never invested before and after a decade of building up her savings in a cash ISA, the married mum of two was fed up with the measly returns offered by the high-street banks. Wanting more from her money, she made her investing debut.

Busy juggling her career with her family life, Michelle doesn’t have the time, knowledge or interest to manage her investments herself, but she knows she needs to do something to take control of her financial future. This is why she prefers to leave the management of her ISA to the experts.

“That’s the beauty of the Moneyfarm Stocks and Shares ISA. I want the experts to do it for me, and am happy to take risk of fluctuations of the market knowing they are in control.”

Moneyfarm provides all its customers with regulated investment advice, matching people with investment portfolios that are specifically built and managed by a team of investment professionals to suit their investor profile.

The investment advice Michelle receives continues for as long as she invests with us. Once a month, or whenever something big changes on her account, our suitability algorithm will run to ensure she’s invested in the right portfolio for her risk appetite and financial goals.

Financial security in retirement

Michelle works and saves hard to build a financially secure future for her family. To her, financial security means keeping a roof over her head in retirement, helping her children through school and university, and then hopefully onto the housing ladder.

Her overarching aim is to retire with her husband, who is five years older than her. By retiring earlier than the state pension would usually support, they both hope to spend quality time together after decades of hard work. They’ll be mortgage-free by then, and be able to enjoy retirement to the fullest.

She muses: “67 isn’t that old, I’ll still be active and be able to enjoy life, although I might still have a family to support if they go to university.”

Otherwise, she’d love to travel to the parts of world she hasn’t seen: “It would be great to get back to pre-children phase where you can just jump on a plane when you find a good deal.”

Michelle knows that money can’t buy time, but through careful planning and by sticking to her pension savings plan, it is something she hopes to afford.

“We don’t know if there will be a state pension when we retire. It’s a priority to make sure we are comfortable, keep a roof over our heads, go on holiday once a year, keep a car on the road. It’s about making sure we have enough.”

Make the most of employer contributions

She has two employer pensions, a small defined benefit fund from a previous employer, and a good defined contribution scheme into which her employer doubles her contribution.

Her employer gives her the option to take some of this as cash, but Michelle is maximising the benefits available to her. It’s money she has never seen, so she doesn’t miss it, she explains.

As she gets older, Michelle is thinking a lot more about her pension, how we wants to spend her retirement and whether the two match up. Although Michelle is a meticulous saver and she’s making the most of her work place pension, she’s knows there’s a gap between where she currently is and where she wants to be thanks to the use of online tools like Pension Calculators.

“I’ll come back once a year to check, hopefully this will sort itself out. As priorities change I’ll know that I can put more in pension to make-up this gap,” she explains.

Michelle talks a lot about priorities, and the one that tops the list is her children. She’d love to open a Moneyfarm Pension but she’s reluctant to lock any more away with a young family. This isn’t uncommon. Her emergency cash buffer is where she wants it to be so she is prepared to increase her pension contributions when her priorities change.

Of course, she has concerns – namely around the value of her pension pot. Although Michelle is comfortable that this value will fluctuate and, in her early 40s, she knows she’s young enough for things to recover from any short-term volatility.

The minefield of managing retirement income

After pension freedoms, Brits have much more flexibility as to how they use their pension savings, but this can be confusing for families looking for the best way to protect their retirement income throughout retirement.

“I could buy an annuity and drop down dead. But if I live to 93 I won’t need half of my income then. Drawdown option is very attractive in that scenario,” she explains.

“It’s a minefield, it’s impossible to tell what will be best for me in the future. I’ll get financial advice, but I won’t leave it to last minute. I’m very financially cautious. I’ll know at 55 my path to retire at 65 – my best case scenario.”

Moneyfarm’s Investment Consultants help many investors explore their options when it comes to withdrawing from their pension. Whilst they aren’t able to provide pension advice, then can answer any of your questions and help you research so you have everything you need to make the best decision with your money.

Michelle and her husband also have a buy-to-let property, and they are flexible as to whether they will get retirement income from the rent, or sell it and either swap the lump-sum for annuity or invest it and enter flexi-access income drawdown.

Michelle can check on her employer pension whenever she likes, but she chooses to do it annually. She can see the performance and how much she has paid in fees.

For now she is happy with the contributions from her employers, but if she were to change jobs she would look more closely at performance, decide whether it is good value for money and able to help her reach her goals.

What’s very clear is that Michelle is financially savvy – she knows what she needs to improve her chances of retiring early with her husband and is doing everything she can to give her children the best family foundation.

An unexpected redundancy last year forced Roger Werner, 59 at the time, to think seriously about whether he could afford retiring early. A Director of a small arts charity for 23 years, he wanted to dedicate his time volunteering in local projects, starting with building a multi-purpose venue in his Devonshire-town Crediton.

Not one to take this decision lightly, Roger began his research. With five pensions in different places, it was difficult to understand exactly what he had and to calculate the impact different costs were having on his pension savings.

He’s now much happier having all his pensions in one place, and feels they are working that little bit harder for him.

Roger wasn’t alone in having multiple pensions. Around 6.6 million people with numerous pensions have lost track of at least one of their retirement pots, according to provider Aegon.

Researching his personal pension options

Taking advantage of the opportunity to have free face-to-face meetings with advisors from his company pension and a local independent financial advisor in town, Roger was told a digital wealth manager like Moneyfarm could be the cost-efficient financial solution he was looking for to manage his retirement income.

Thorough online research and regular, informative discussions with our Head of Investment Consultants, Will Hedden, meant Roger was confident in Moneyfarm’s ability to manage his pension savings. This personal service meant he knew real people were there to help him through what can be a financially daunting period of your life.

“In my working life I learnt very quickly that you need to be able to relate to people,” explains Roger. “Personal relationships make the world work.”

Cost is important to Roger. Although he doesn’t want to give a large chunk of his pension to his provider, he is happy to pay to have his pension investments managed in the best way to reflect his investor profile, risk appetite and retirement goals.

Of course, another option was to use an investment platform and manage his investment portfolio himself.

“I didn’t feel qualified,” Roger explains. “I lacked the confidence and knew I’d have to do a lot of research myself. Wherever you go, uncertainties in the world will be the same. It comes down to what you want to spend your time on.”

Investment advice

Instead, Roger gets to spend his time with his family, volunteer in his local community and play badminton, safe in the knowledge that he’s getting cost-efficient investment advice and experts are managing his pension on his behalf.

He doesn’t mind that he won’t earn any money from playing his part in building his local community hub, it will be rewarding in other ways. The project will take three-four years to complete, but by the end he hopes to have built a financially sustainable venue that will seat 200 people, giving all generations in his Crediton town a place to call their own.

How he uses the Moneyfarm Pension

Marrying later in life, both Roger and his wife had separate properties that they were able to sell and then invest the capital elsewhere. He relies on this for his regular income, which he supplements with flexi-access drawdown from his Moneyfarm Pension.

Roger plans on only crystallising part of his pension each year until he gets the state pension. He sees this as his pocket money, helping pay for badminton and meals out.

Many pension providers charge you to withdraw from your pension, which can add up quite quickly. With Moneyfarm Roger only pays the account management fee and ETF fee, there are no surprise extra charges. For someone who is aware of costs, this is a good match.

“By keeping my pension invested during my retirement, I can try and preserve the value of my pension instead of eroding it,” he explains.

Saving for his retirement

Roger had a company pension that he had saved into during the ten years he working in purchasing, but only started thinking about opening personal pensions when started his charity job as he was self-employed.

“I was starting to get a bit older, in my late 30s, and I wanted to make sure I had something put away. I set-up a monthly direct debit and just forgot about it. I then budgeted from the rest,” says Roger of his retirement savings habit.

Retirement goals

When it comes to his retirement goals, Roger wants to see the world. “I’m not a typical case,” says Roger. “ I did a lot of travelling before adopting my children, who are still at school.”

It’s six years until the youngest should fly the nest, which is when Roger and his wife plan to go back to travelling around Europe and further afield. So far, his favourite place he’s been to is Cambodia – he’s been three times.

Short-term, he wants to see his son leave school with GCSEs to give him some security to go into the world, and wants to support his youngest through education.

In this guide, we worked with Boring Money to look at the fees you could be charged by your pension provider in two important stages; when you’re saving for your pension and when you start withdrawing from it.

Pensions can be an expensive business. When you’re busy focusing on whether you’re saving enough or how to access your pension to match your lifestyle, it can be difficult keeping up on exactly how much you’re paying in fees and what impact this is having on your pension.

It’s important you understand the charges of your pension provider, as fees eat into the income you’ll get during retirement. When you’re receiving a service, fees are a fact of life, but you don’t want these costs to mean you miss your dream retirement income or have to work longer to reach your goals.

In this guide, we look at the fees you could be charged by your pension provider in two important stages; when you’re saving for your pension and when you start withdrawing from it. In the industry, this is known as accumulation and crystallisation.

We worked with consumer financial group Boring Money to find out how much you could be required to pay in three scenarios; when you’re saving for your retirement, and when you’re withdrawing from your pension through either flexi-access drawdown or with irregular lump sums – Uncrystallised Funds Pension Lump Sum.

At Moneyfarm we believe you should know exactly what you’re expected to pay for your pension as this will impact your retirement income. We only charge a management fee at an account level, which means there are no surprise flat fees or charges for rebalancing, transferring or for meeting targets.

The total cost of investing includes two further costs, the transaction cost (market spread) and fund fee, but these aren’t controlled by Moneyfarm or any provider.

Costs of saving into a pension

Whether you’re opening your first personal pension to help supplement any workplace schemes, or want to transfer old pension pots to a different provider to make your money work harder, there are a range of fees you may be required to pay by your pension provider to set up and manage your pension savings.

For our research we imagined a 45 year old transferring a £50,000 workplace pension into a personal pension, with a direct debit of £250 a month going in until the age of 60. Purchasing a single fund or pension portfolio, this pension would grow by 5% a year to give a final pension pot value of £170,000.

Our research showed this cost an average of nearly £12,900 over 15 year across digital wealth managers and more traditional investment platforms, although this could cost as much as £25,900 with one DIY platform. At Moneyfarm, this would have cost you just £12,550.

Below are the fees you may be required to pay a pension provider for keeping your pension with them. Remember, at Moneyfarm we charge you one fee at an account level, the management fee – although you will also be subject to ETF fees and the impact of market spread. The ETF fee is included in the research calculations.

Initial set up

The first cost you may be exposed to when opening a new pension is the initial set-up fee. It’s pretty rare for a provider to charge you to open an account these days, although these charges do still exist.

Transfer costs

It’s common to be charged for transferring your pension savings to or from a provider, especially if it’s a pension scheme that includes so-called safeguarded benefits, like a defined benefit pension.

If you want to transfer a defined benefit pension that’s worth over £30,000, you’ll need to speak to a Financial Adviser before you can transfer out of the scheme. Remember, this will come at an additional cost, so it’s important you factor this into your calculations.

Administration costs

For a provider, running a pension can require more work than an ISA. As a result, providers will sometimes charge a pension administration fee, which covers the management of your pension and can sometimes be separate to the ‘general’ management fee.

Not all providers charge a separate pension management fee, but look out to see if the normal management or administration costs for their pension is different from their ISA or General Investment Account (GIA).

Management or account fees

To have experts look after and manage your pension on your behalf, you will usually have to pay a management fee – which can we charged at an account or product level. Even if you want to take control of your pension investments yourself, you will still have to pay a platform fee.

These charges usually come in two forms: a flat-fee or a percentage-based fee.

A flat fee is a single fee that generally doesn’t adjust to changing values in your investment portfolio.

Percentage based fees differ according to the value of your investments, and are usually charged when a provider is managing your investments on your behalf. These fees are usually tiered, so you may pay a smaller percentage fee the more you have invested.

At Moneyfarm you pay a management fee of just 0.7% on anything up to £20,000, 0.6% on anything between £20,000 and £100,000, 0.5% on anything between £100,000 and £500,000, and then 0.4% on anything above that.

Dealing fees

Usually when you transfer your pension, it has to be done in cash, which will then need to be invested. Digital wealth managers like Moneyfarm don’t tend to charge investors to buy and sell investments, but many traditional providers and platforms do.

Providers and platforms can also charge investors to set up a direct debit or to reinvest dividends. Reinvesting any income you earn from investment can help you maximise your returns through compound interest. This is where the interest you earn on your investments is reinvested and then earns its own return. One of the most powerful forces to investing, this can make a real difference to your returns over the long-run.

VAT

Always understand whether costs include VAT, as this can often be added on later. Remember, whilst VAT often isn’t charged on ISA or investment account services, it is often applied to pension charges – so watch out!

Cost of pension crystallisation

Today, there is much needed flexibility over how you can manage your pension savings during retirement to make sure you’re managing your money in the right way for you. Gone are the days where your only option was to swap your savings for an annuity – a regular income until you die.

You can now keep your savings invested throughout your retirement, which means your money can continue to work hard for you. With retirements lasting over three decades now the norm, that’s a long-term time horizon that, if used correctly, could help strengthen your retirement income.

Whether you decide to enter flexi-access drawdown or want to take lump-sums here and there, you need to make sure you understand all the costs you could be faced with as these could significantly eat into your retirement income.

By keeping your savings invested, you’ll be subject to many of the same costs as when you build up your pension pot and a few extra.

For our research with Boring Money, we assumed a 60 year old had a £300,000 pension and wanted to enter income drawdown to take a regular income. After taking the 25% tax-free lump sum, they had an £11,250 annual income for the next 20 years.

On average this cost someone in retirement £23,100 across their retirement, although this could cost as much as £41,300. At Moneyfarm this cost just £19,900.

The third scenario takes a 65 year old investor with a £500,000 pension pot, who wants to take ad-hoc lump sums over 15 years.

This was by far the most expensive option for those needing financial security in retirement, with the cost averaging £35,200 across the industry. This shot up to nearly £70,000 with one provider. Taking ad-hoc lump sums with Moneyfarm would have cost just £29,800 in this scenario.

Tax free lump sum

One of the great things about investing in a personal pension are the generous tax benefits. You can take 25% of your pension as a tax-free lump sum from the age of 55 – you’ll pay income tax on the rest, however you decide to take it.

This is sometimes referred to as a pension commencement lump sum (PCLS). Although you can get a quarter of your pension savings tax-free, this can come at an additional cost with some providers that investors should look out for and can cost up to £150 +VAT.

Drawdown/regular income fee

Income drawdown gives you a more flexible approach to your income during retirement. By keeping your savings invested in the market, you can decide how much you want to take as a regular income and how frequently you want to get it.

You can still take your 25% tax free lump sum from the age of 55, paying usual rates of income tax on the remainder. By keeping your pension invested, you’re hoping your money will continue to grow in value.

It is common for investment providers to charge you a fee to enter drawdown and is most often referenced in the cost sheets as an ‘annual drawdown fee’, although it can also be called an “annual payroll” fee. On average, we found this fee cost around £142.80 per year.

Altering payment date/frequency

Whilst drawdown gives you flexibility over how often you want to withdraw from your pension and how much you want to take from it, if you want to take advantage of this flexibility and change the date of your payment or frequency, you might be charged by your pension provider. This can easily cost £10-£25 plus VAT a time.

Account closure

If you close your pension within the first 12-24 months, your pension provider could charge you as much as £300, plus VAT. It’s less common to be charged for closing your pension after the first 24 months, however.

Ad-hoc payments – Uncrystallised Funds Pension Lump Sum (UFPLS)

If you have no need for your tax-free lump-sum, you can choose to take your tax-relief with

your withdrawals instead. This is known as a uncrystallised funds pension lump sum (UFPLS). You’ll get 25% of each withdrawal tax-free and pay income tax on the rest.

Pay a close eye to UFPLS charges as fees can differ significantly between providers. Charges can range from nothing, to £25 – £225, excluding VAT, for a single payment.

As you prepare for financial security throughout retirement, it’s crucial you understand how costs can impact how much you will have to play with. If you’d like to talk this through with an expert, book a call with one of our Investment Consultants today.

]]>https://blog.moneyfarm.com/en/pensions/guide-pension-fees-charges-moneyfarm/feed/0Should I invest in a LISA or a Pension?https://blog.moneyfarm.com/en/pensions/should-i-invest-in-a-lisa-or-a-pension/
https://blog.moneyfarm.com/en/pensions/should-i-invest-in-a-lisa-or-a-pension/#respondWed, 29 Aug 2018 16:47:41 +0000https://blog.moneyfarm.com/en/?p=6855

The Lifetime ISA is designed to help people save for their first home or retirement, but with its added government bonus, should you be investing in a LISA or a pension?

The Lifetime ISA is designed to help people save for their first home or retirement, but with its added government bonus, should you be investing in a LISA or a pension?

What is a Lifetime ISA (LISA)?

The Lifetime ISA (LISA) wrapper works just like a stocks and shares ISA, any money you put in the ISA can grow tax-free for as long as it’s in there.

If you’re under the age of 40, you can opt to put up to £4,000 in your LISA each year and receive a 25% top-up from the government – that’s £1,000 if you’ve invested the full amount.

Although the LISA is more generous than the Help to Buy ISA, it’s been controversial due to its plans to penalise savers who might need to access their cash early. The savings pot can only be used to buy a first home or for retirement from the age of 60, otherwise it’s locked-up.

If you need to access your money for something else, you’re charged 25% of the amount you withdraw as a penalty. This means you would get less than you had initially put in if you access your money early.

Whilst you might be saving for retirement, the complicated LISA isn’t a specific pensions product.

After recent pension freedoms saw exit charges reduce to 1%, the 25% charge looks a massive disadvantage, especially when you can usually take 25% of your pension as a tax-free lump sum at 55.

The current government contributions to pension savings are more generous for higher and additional rate taxpayers.

Tax benefits of a pension

The tax benefits to investing in a personal pension are generous. When you invest into your pension, you can claim tax relief on your contributions relative to your income tax band.

You can usually get the basic rate of tax relief automatically added to your pension contributions with your pension provider, which means you only have to pay £8,000 for a £10,000 contribution. This is the same as getting £200,000 tax relief on a pension pot worth £1 million, which is the equivalent to a 25% boost in your savings.

You can claim back more through HMRC if you’re a higher or additional rate taxpayer. This adjustment is usually reflected in your tax band.

Personal pension wrappers act a lot like ISA wrappers. Any investments that you keep in here can grow protected from tax, although you may be required to pay tax on some of your pension when you withdraw it.

Tax benefits when you withdraw your pension

Once you reach the age of 55, you can withdraw a quarter of your pension tax-free. You’ll pay income tax on the remainder, whether you decide to take an annuity, enter income drawdown, or take lump sums.

You decide what to do with your tax-free lump sum, but it’s important you don’t waste it because once it’s gone, it’s gone.

The age you can access your personal pension raises to 57 in 2028, so it’s important you do what you can today to secure your financial future.

If you have no need for a big lump sum, you can choose to take your tax-relief through your withdrawals. As you won’t have taken your tax-free lump sum, this is known as an uncrystallised funds pension lump sum (UFPLS).

If you withdraw £10,000 from your pension, for example, £2,500 will be tax free. The remainder will be taxed at your marginal rate of income tax.

Inheritance tax

This can be good in terms of inheritance, as no inheritance tax is charged on a pension. If you withdraw your tax-free lump-sum this may be counted as part of your estate, which could increase the inheritance tax bill your loved ones have to pay.

If you die before the age of 75, your pension will be passed on completely tax-free to your beneficiaries. A lifetime allowance check will be made on uncrystallised funds. If you’re over 75 when you die, your beneficiary will be charged their marginal rate of income tax on your pension savings.

Whilst you may be eligible for higher rate tax relief whilst you’re contributing to your pension, you may be charged just the basic tax rate in retirement, which will give your savings an extra little boost.

Can you have a LISA and a pension?

Essentially, the LISA wasn’t designed as a pension replacement; you have to wait longer to access your pension, pay higher exit charges, and could get less generous tax relief.

The two can be used together as a part of reliable financial planning, however. If you’re a higher or additional rate taxpayer and you’ve exhausted your annual pension allowance, investing in a LISA could help boost your retirement income more than in a stocks and shares ISA alone thanks to the government bonus.

Make sure you understand all the rules around investing in a LISA before you start. At Moneyfarm, we advocate the benefits of long-term investing, we don’t want to penalise those who need to access their money early. Knowing your investments balance risk and return is one thing; knowing you’ll get less than you put in if you’re forced to use it early is quite another.

Remember your annual ISA allowance is £20,000. If you do invest the full £4,000 in a LISA, you will still have capacity to invest in a stocks and shares ISA afterwards.

The future of the LISA could be under threat, however, after the Treasury Select Committee recommended the government abolish the LISA, saying it is too complex and not popular with savers.

Whilst there’s no idea if this recommendation will be taken, or if it is when it will come into effect, but it’s important to make the most of the schemes available to you to maximise your income throughout retirement.

Moneyfarm Pension

The Moneyfarm Pension is a personal pension plan designed to give you financial security throughout retirement.

As one of the first digital wealth managers to offer regulated investment advice, we’re committed to bringing advice to more people and changing the relationship people have with their investments.

We provide a unique combination of investment advice and discretionary management to help people grow their wealth over time.

]]>https://blog.moneyfarm.com/en/pensions/should-i-invest-in-a-lisa-or-a-pension/feed/0Saving for a good retirement income: How long will it take?https://blog.moneyfarm.com/en/pensions/good-retirement-income-save/
Fri, 17 Aug 2018 08:30:45 +0000https://blog.moneyfarm.com/en/?p=6579

Follow one of our simple regular investment plans and you could make your retirement dreams a reality. It might not take as long as you think!

Luckily, managing your pension to stay on track to reach your retirement goals doesn’t need to be complicated or intimidating. The right regular investment plan can help you unlock the future you deserve, and give you the financial confidence to focus on the important things in your life today.

With information on the tax benefits available to you, the role of investment advice, three regular savings plans and information on self-employed personal pensions, the eBook will help keep you on track to get the retirement income you deserve.

Simple rules to maximise your pension

Saving for retirement can often feel like a black hole, but growing your money for the future doesn’t need to be difficult. There are some simple rules you can follow to help you maximise your returns to help reach your financial goals.

These golden rules are:

Start as early as possible

Invest as much as you can

Invest regularly

Diversify your investments across asset classes and geographies

Don’t let unnecessarily expensive fees eat into your returns

Here we look at the benefits of regular investing.

Regular investment plans

Few would advise investors to try and time the market. It’s too difficult and can leave the fingers of the most established and experienced investors rather burnt.

Instead, investors can manage the risk of timing and actually maximise returns by setting up a regular direct debit. Investing regularly smooths out the price you pay for an asset. It can lower the amount you actually pay for it during periods of volatility.

But setting up a direct debit has more benefits than that, it takes the hassle out of investing for people who are too busy trying to juggle their career with the school run. It also allows you to ignore market noise and avoid potentially costly knee-jerk reactions.

Regular investing with Moneyfarm

The two golden rules of saving for retirement are start as early as possible and save as much as you can. But how do you know if you’re doing enough to be on track to have the retirement you want?

That’s why Moneyfarm has created three regular investment plans to help investors understand whether they’re doing enough to achieve the retirement they want.

The regular investment plans popular with our investors are £400 a month, £800 a month and £1,600 a month.

By setting aside this much each month you could be on track to a comfortable retirement income in less time than you think! However, it also highlights the dangers of not investing enough, or leaving it too late.

How long will it take you to save for retirement?

A look at the table below shows that by investing £400 a month in a diversified investment portfolio, you’d build up a pension pot that could provide you with a £25,000 annual income (£500,000) in 36 years, and a £37,500 annual income (£750,000) in 43 – assuming annualised growth of 7.5%.

If you take a more conservative view and pencil in annualised growth of 5%, it would take your 50 years to get £500,000 and 64 years to get £750,000.

It’s reasonable to expect that you can earn an annualised return of at least 5% from a balanced and diversified portfolio over the long term. Over the last three decades, a 60/40 diversified portfolio has returned an annualised 7.5% – we’ve got more information on this below.

Assuming 5% is your return, you can then withdraw 5% from your pension each year. Theoretically, you’ll never deplete the nominal value of your pension.

That means that for an annual income of £25,000, you’ll need a pension pot worth £500,000. For £37,500 a year you’ll need £750,000.

Fast track to retirement

It’s probably not a surprise that the more you can invest each month, the quicker you can get to your desired pension pot size.

If you invest £800 a month into your pension, it will take 24 years to get a pension pot worth £500,000 and 31 years to get £750,000 – assuming 7.5% growth.

When calculating these numbers, we assumed you invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds.

If you’d started invested in this 60/40 model portfolio in 1990 and continued to today, your money would have grown by an annualised 7.49%. We’ve assumed this rate of growth for our regular savings plans below, along with a more conservative 5% growth estimate.

These numbers also include an annual fee of 1% and include the impact of a 2% rate of inflation on the value of your savings pot.

If you can afford to put £1,600 in your pension each month, you’ll quickly see the benefit on the size of your pension pot. It will take just 15 years to generate £500,000, and just 20 to enter retirement with £750,000 saved up.

*These numbers include the 25% boost you’ll get from the government in the form of tax relief.

Tax benefits to a personal pension

There are many benefits to saving in a personal pension, with one of the largest being the generous tax benefits.

If you’re a higher rate taxpayer you’ll only pay £6,000, or just £5,500 if you’re an additional rate taxpayer for an overall £10,000 contribution. Remember, you’ll get just the basic rate of tax relief on your contribution in your pension. You’ll have to go apply for the rest through your annual tax return.

This tax relief effectively gives you a 25% boost to your savings. Imagine you’re paid £1,250 as a basic rate taxpayer. You pay £250 to the taxman (20%), and decide to put the remaining £1,000 straight in your pension.

The government tops up your contribution with the £250 they assume you paid in tax when you got paid. This is equivalent to 25% of your net savings.

This can make a real difference over time, and can be a real boost to your pension pot. Moneyfarm is one of the only digital wealth managers to provide this basic rate tax relief at source.

Then, once you’ve reached retirement, you can take 25% of your pension savings as a tax-free lump sum. You’ll pay tax on the remainder in-line with your income tax band. This will likely fall to the basic rate during retirement.

Managing your pension pot to ensure you’re on track for your retirement goals can be difficult, but life’s too short to forget to prioritise the future you.

That’s why Moneyfarm has decoded the pension landscape with this free eBook, to make reaching your retirement goals as simple as possible.

In this book we explain how investment advice on your pension could help unlock the future you deserve and give you the freedom and financial confidence to focus on the important things in your life today.

What is pension drawdown?

Many use income drawdown as a way to provide themselves with a regular income throughout their retirement. Often, pension savers will need to transfer to a pension provider, or fund, that offers an income drawdown feature.

At Moneyfarm, our pension comes with a flexi-access drawdown feature as standard. This means that when you reach 55, you can enter drawdown from your pension at no extra charge.

Some providers charge an additional fee for this, but our drawdown is covered by your management fees.

What’s important to remember is that when your pension savings are gone, there’s no way to get them back, so it’s important you consider your options to avoid costly mistakes that could impact your quality of life further down the line.

How income drawdown works

Income drawdown starts with you choosing how much money you’d like to take from your pension and when. You can’t access any money in your pension until you reach the age of 55, although this age is set to rise to 57 in 2028 when the state pension age increases from 66 to 67.

If you’re entering flexi-access drawdown, you can usually take up to 25% of the amount you’re accessing tax-free as a lump sum. You’ll then pay income tax on your withdrawals.

To draw from your pension on a regular basis, this money needs to be with a provider that allows you to take income when it suits you. Not all providers offer this, so you’ll need to find out what your current pension provider offers.

The beauty of income drawdown is that your pension stays invested as you withdraw from it. Research from Which? makes the assumption that you would often withdraw 5% a year, and your investment would grow by an annualised 4% a year over the length of your retirement.

There are two main types of income drawdown product:

Flexi-access drawdown – first introduced in April 2015, there is no limit on the amount you can choose to take from your pension (this is what Moneyfarm offers)

Capped drawdown – if you’re using this you will have started withdrawing from your pension before 6 April 2015. There are limits on the income you can take out; this is capped at 150% of the income a healthy person of the same age could get from a lifetime annuity

The positives and negatives of income drawdown

The cost of pension drawdown

The cost of entering income drawdown is quite difficult to calculate as different companies have very different charging structures.

At Moneyfarm you pay the Moneyfarm management fee and the underlying fund cost. This is the same during accumulation (saving for retirement) and decumulation (withdrawing from your pension).

You could incur as many as five or six different types of costs when entering pension drawdown with other providers. These could include drawdown set-up charges, platform charges, fund fees, admin charges, and on top of this you may also need to pay a charge for trading.

Which? simulated the charges somebody could face over a 15 year period on a £250,000 pension pot, again making the 5% withdrawal assumption and 4% investment growth assumption.

At Moneyfarm, this would cost you £27,370 and at the end of the 15 years you would have £183,521 left in your pension. According to Which?, you could pay up to £11,000 more in fees at some providers and be left with £10,000 less at the end of the 15 years.

Tax on pension drawdown

Money taken from your pension is taxed at your marginal rate of income tax. This is not the tax you paid whilst working, but is instead calculated on the income you receive from your pension.

You can take 25% of the amount you’re crystallising (putting in drawdown) as a tax-free lump sum when you enter drawdown and pay income tax on the remaining withdrawals.

As part of your financial planning, you might decide to crystallise smaller parts of your pension pot into income drawdown as you go along instead of doing it all at once. When you take your lump sum payments, it’s then classified as part of your estate and could mean a large inheritance tax bill if you die.

If you don’t take your tax-free lump sum, it will stay protected by your pension wrapper and it could be passed on tax-free if you die before the age of 75.

If you enter drawdown whilst you’re still working (even if this is part-time) you could be placing yourself in a higher-rate tax bracket. So it’s vital that you look at the tax and understand what you’re paying.

Alternatives to pension drawdown

Uncrystallised Funds Pension Lump Sum (UFPLS)

You can decide to take lump sum withdrawals from your pension, and you’ll get 25% tax free and the remaining balance will be subject to income tax. It’s important to consider the growth you need to see in your portfolio to ensure you have an income for as long as you need it. Remember longevity risk is a key consideration when planning your retirement income.

Annuity

You can also take your retirement savings and buy what is known as anannuity. This is when you swap your pension savings for a guaranteed income throughout retirement, you can also get short-term annuities. These are often offered by insurance providers and the rates offered can vary. There are also tax considerations with an annuity as only certain types of annuities can be inherited.

Considerations when entering income drawdown

Income drawdown is all about providing yourself with an income in later life and ensuring that you do this in a tax efficient way that works for you.

Paying for advice before entering income drawdown could save you thousands in later life. An advisor would be able to help you calculate the amount you need each year, and which account you should take money from first. This could reduce the risk of taking too much from your pension too early. Unfortunately, Moneyfarm are unable to advise on pension drawdown.

Often it’s worth looking at your ISA savings first before dipping into your pension (if you still have ISA savings when you want to draw from your pension). The tax allowance on this is based on the individual and therefore could be subject to inheritance tax when you pass away.

Remember, you also have a personal tax allowance, which is £11,850 in the 2018/19 tax year.

]]>What a pensions overhaul could mean for you and how to stay one step aheadhttps://blog.moneyfarm.com/en/pensions/what-pensions-overhaul-could-mean-for-you-how-to-stay-one-step-ahead/
Fri, 27 Jul 2018 15:38:07 +0000https://blog.moneyfarm.com/en/?p=6754

Calls by an influential government body to abolish the Lifetime ISA and abandon the current pension tax relief model in favour of a universal flat rate could radically change the pensions landscape in the UK. Here are three ways to stay one step ahead.

Calls by an influential government body to abolish the Lifetime ISA and abandon the current pension tax relief model in favour of a universal flat rate could radically change the pensions landscape in the UK.

The committee has suggested replacing the lifetime allowance with a lower top annual allowance, and introducing new flat-rate tax relief instead of the tiered model savers currently benefit from.

The report also encouraged the government to pull self-employed workers into auto-enrollment and to abolish the Lifetime ISA.

Tax relief

Designed to encourage everyone to save for their future, savers can currently get tax relief on their pension contributions relative to their income tax band. Basic rate taxpayers get 20% tax relief, higher rate taxpayers get 40%, and additional rate taxpayers get 45% tax relief on their pension contributions.

For example, if you’re charged the basic tax rate, you’ll only need to pay £8,000 into your pension for a £10,000 contribution – the basic rate tax relief is automatically added to your pension investments.

This is equivalent to a higher rate taxpayer getting an extra £2,000 on top of the £2,000 that is automatically added to their pension, and an additional rate taxpayer getting an extra £2,500. The additional relief is reflected in your tax band, however, and isn’t processed like your basic rate tax relief.

This UK’s tax relief scheme can make a real difference to the amount you save for your retirement income over the long-run.

However, tax relief isn’t understood by many, which means it isn’t working to encourage people to save, and this is why the Treasury Select Committee has suggested it be looked into. Baroness Altman told the Committee: “My preference would be for everybody to get the same incentive for the same contribution.”

She also suggested that “it would be really helpful and more effective if we were able to badge tax relief as a Government bonus on your pension or the Government contribution to your pension.”

There’s been no discussion of what this flat rate of relief might look like, but based on the discussion by the committee it seems that high rate and additional rate taxpayers will receive less than they currently receive.

The annual allowance

The select committee has also suggested scrapping the lifetime allowance, currently at £1.03 million for the 2018/19 tax year, in favour of a lower annual allowance and flat rate of tax relief.

Currently, savers can put their annual salary or £40,000, whichever is lower, into their pension each year to benefit from the generous tax relief.

This includes contributions from you, your employer and your tax relief.

You can keep putting money into your pension, you’ll just be charged a fee. The charge for exceeding your annual allowance is set at your income tax band. This acts as if the excess amount were added to your other earnings.

If you earn in excess of £150,000 a year, this allowance is tapered. Every £2 of additional income over £150,000 will reduce the annual allowance by £1. The lowest this can go to is £10,000 for anyone with adjusted income of £210,000 or above.

What should you do now?

Nobody has a crystal ball and we don’t know whether Chancellor Philip Hammond will shake up the pensions environment in the near future, but we can assume that he’s looking at the Treasury Select Committee’s proposals.

Below we’ve given you three tips to help make the most of the benefits available to you today, and get a step closer to having the retirement you deserve.

Make the most of your annual allowance

Pay as much as you can into your pension each year to make the most of your annual allowance. You can either increase your monthly direct debit, or make a lump-sum investment if you want to use your full entitlement but are more uncertain about future regulation changes.

Carry forward any unused annual allowance

If you want to contribute more than your annual allowance in a tax year, you can usually carry forward up to three years of unused allowance before you start withdrawing from your pension savings. This will allow you to catch-up on any conditions you may have missed and reap the tax benefits at the same time.

Make the most of your tax relief

If you’re a higher or additional rate taxpayer, make sure you claim back any additional relief from HMRC above the basic rate. You’ll automatically get 20% from your pension provider, but this could increase to 40% or 45%.

For more information on how Moneyfarm can help you with your pension visit our pension page, or book a call with one of our investment consultant.

There are ample tax benefits to take advantage of when you’re saving into a personal pension, and the good news is that the tax breaks don’t end once you’re in retirement. There are some simple ways you can make your money go even further, to give you the retirement income you deserve.

There are ample tax benefits to take advantage of when you’re saving into a personal pension, and the good news is that the tax breaks don’t end once you’re in retirement. Thanks to government-led incentives, there are some simple ways you can make your money go even further, to give you the retirement income you deserve.

Once you get to the age of 55, you can take 25% of your pensions savings as a tax-free lump sum. You decide what you want to do with it, whether that’s invest it, spend it on home improvements, help your children on the property ladder, or swap it for an annuity.

Be careful though, if you’re in a defined contribution scheme, once this money has been spent, it’s gone for good.

Taking this lump sum doesn’t get included when your taxable income is calculated. This means you can still withdraw an additional £11,850 in the 2018/19 tax year, for example, before you qualify to start paying income tax.

Your total income could include your state pension, an additional state pension, private pension, earnings from employment or self-employment taxable benefits and any other income from investments, property or savings. You may get more than one tax code, so it’s important you check this to ensure you’re being charged correctly.

You’ll pay your normal rate of income tax on the rest of your earnings above the £11,850 threshold. If you fall in the basic rate tax band you’ll pay 20%, 40% if you fall in the higher rate band, and 45% if you’re in the additional tax band.

Although you may still be required to pay income tax on your pension income, the charge might be less than the relief you received on your pension contributions during your employment. By the time you’re in retirement, your total income will likely be lower than when you were employed, potentially moving you into a lower tax band.

By the time you get to state pension age, you’ll no longer be required to pay National Insurance contributions.

Should you take your tax-free lump sum?

Thanks to pension freedoms, you can keep your pension savings invested throughout retirement instead of being forced to swap your pot for an annuity. Whilst annuities play a reliable part in financial planning for retirement, it’s important people have the opportunity and flexibility to make the best decisions with their money to suit their lifestyle and financial background.

Although an annuity offers a regular income throughout your retirement, by keeping your money invested in the stock market, you hope to grow your pension pot over the long-term.

It might seem that you have to take 25% tax-free when you get to the age of 55, but you don’t. Instead of taking your lump sum, you can get 25% of each withdrawal tax-free instead, and pay income tax on the rest.

As you won’t have taken your tax-free lump sum, this is known as a uncrystallised funds pension lump sum (UFPLS).

If you withdrew £10,000, £2,500 would be tax free. The remainder would be taxed at your marginal rate of income tax. You’ll need to tell HMRC about your new tax code as you may find you get placed on emergency tax.

It’s reasonable to assume your investments will grow by an annualised 5% over the long-term, according to research from the FCA. That means you could get more money tax-free by refusing to take the 25% lump sum at the offset and giving your money the opportunity to grow.

Keeping your money invested for longer can also be good in terms of inheritance tax. No inheritance tax is charged on pensions if you die before the age of 75. If you withdraw your tax-free lump sum, this may be counted as part of your estate, which could increase the inheritance tax bill your loved ones have to pay.

Tax relief when saving on your pension contributions

When you’re putting money into your pension for the future, you can claim generous tax relief from the government which can help boost your savings and, ultimately, help you retire quicker or with a better income.

This tax relief is calculated relative to your income tax band. If you fall in the basic rate tax band, you’ll get 20% relief on your pension contribution. This turns a £10,000 deposit into £12,500 and is automatically added to your pension contribution at source.

If you pay the higher rate of tax or additional, you can claim back more through your self assessment tax form. Although you won’t get the money in your pension, it’s usually reflected in your tax code. You can add this back into your pension to make your money go even further.

In Scotland, the rates differ slightly, with an additional 19% and 21% tax band, and the higher and top rate rising by 1% to 41% and 46%. Those on starter rates of 19% still get 20% tax relief.

Money Purchase Allowance

Once you start withdrawing from your pension, you might be subject to the Money Purchase Annual Allowance. This restricts the amount you can contribute to your pension to £4,000 a year before a tax charge is payable.

Whilst taking your 25% tax-free lump-sum won’t trigger your Money Purchase Annual Allowance, there are a number of ‘trigger events’, also known as ‘accessing flexibility’. You may enter the MPAA in one of the following situations, although if you’re unsure please speak to a financial adviser.

Taking an uncrystallised fund pension lump sum

Entering flexi-access drawdown income

Going above capped drawdown income threshold

Through existing flexible drawdown

Withdrawing stand-alone lump sums

Taking a flexible annuity

If your pension scheme has less than 12 members

Make the most of your ISA allowance

Whilst the amount you can contribute to your pension will fall once you start withdrawing regularly from your pension, you’ll still be able to make the most of your ISA allowance.

You can invest up to £20,000 each year, and any growth in the value of your investments and any income will be able to grow tax-free for as long as it’s protected in your tax-free wrapper.

As it’s an individual wrapper, both you and a partner can invest up to £40,000 a year. ISAs are more flexible than pensions, and you can put money in and withdraw from your ISA throughout the tax year.

Both pensions and ISAs are simple investment wrappers, but they are both crucial when planning your financial future and can make all the difference in the long run.

If you are unsure of your tax situation, please seek independent financial advice.

Tax Freedom Day fell on the 29 May this year, meaning Brits are working more days to pay off their tax bill. Here we give you some simple tax-saving tips to help you make your hard-earned money go further.

Tax Freedom Day fell on the 29 May this year, three days later than in 2017 and the latest in over two decades, showing that Brits are having to work more days to pay off their tax bill. Here we give you some simple tax-saving tips to help you make your hard-earned money go further.

Each year, the Adam Smith Institute calculates the number of days the average person has to work to pay its taxes. From that day onwards, employees are working for themselves.

Put simply, the calculation aims to show whether the amount the so-called ‘average’ Brit is paying in tax is rising or falling. But in reality, it’s quite complicated to measure.

Firstly, as the UK doesn’t have a proportional system, there’s no average Brit when it comes to paying taxes. Tax Freedom Day will come more quickly for those who are on a lower income, whilst it will come later for those on higher income, in theory.

Secondly, the Adam Smith Institute measures the total tax take. This means they include indirect taxes like VAT and corporation tax) in addition to the direct tax you pay (like national insurance and income tax).

The Institute also flags that its complicated calculation also includes depreciation and foreign investment earnings to measure taxes over net national income. As the Office for National Statistics regularly revises its figures, any changes feed through into the calculation, too.

It’s easy to tie in political debate to a discussion on taxes, but numbers from the institute show that the trend for paying higher taxes is well established, no matter which party has been in power. We’re not here to talk about political ideology, but are here to help you make your money go further so you can reach your financial goals.

That’s why it’s important to make the most of your money where you can. There are some simple tax benefits to take advantage of when investing, that can help maximise your returns.

The more money you can keep invested in the markets, the more you can benefit from compound returns. This is one of the most powerful forces of the investment world. It’s when the return on your investments are reinvested and earn their own return.

Simple tax saving tips for investors on Tax Freedom Day

It’s important to remember that tax rules might change in the future, so the sooner you start making the most of the tax benefits available to you, the better.

Invest in an ISA

You can invest up to £20,000 in your ISA each financial year and any growth in the value of your money and any income can build up protected in a tax-free wrapper. This can make a real difference over the long-term and means you get to keep more of your money.

Whilst you can put your money in a cash ISA, you risk losing value to inflation if your returns aren’t keeping up with the rate of price growth. By investing your money in a diversified portfolio, you can look to offset inflation and grow our money to reach your financial goals.

Invest in a Pension

The government wants you to save for your retirement, that’s why it’s one of the most generous tax wrappers you can find. You can find tax advantages when you invest in a pension, whilst your money is sitting in your pension pot, and also when you withdraw.

Pension tax benefits: When you invest

When you invest in a personal pension, you can claim tax relief relative to your income tax band. Basic rate taxpayers get 20% relief on their pension contributions, whilst those in the higher and additional tax bands get 40% and 45% respectively.

You can usually get the basic rate tax relief added to your contribution through your provider, which means you only pay in £8,000 for an overall £10,000 deposit. At Moneyfarm, we do this automatically for you so you can get your money working harder for you earlier – it’s effectively a 25% boost to your savings.

Don’t forget to claim back for any further tax relief through your annual tax return, this can make a real difference to your pension income through retirement.

Pension tax benefits: When your money is invested

Much like an ISA, your pension investments can grow protected in a tax-free wrapper. When you sell your pension investments, you won’t need to pay capital gains tax (CGT) if you cross over the annual exempt allowance.

This CGT is charged at 10% and 20% for individuals, not including residential property. CGT could eat into your retirement income if you didn’t protect your pension in a SIPP wrapper.

Pension tax benefits: When you withdraw from your pension

Once you reach the age of 55, you can take 25% of your pension pot tax free, with the remainder being used to provide you with an income throughout retirement – typically through an annuity or income drawdown.

If you have no need for a big lump-sum, you can chose to take your tax-relief through your withdrawals. A quarter of each withdrawal will be tax-free, with the remainder being taxed your usual rate of income tax.

It’s reasonable to assume your investments will grow by an annualised 5% over the long-term – seeing as retirement can last over 30 years that’s definitely the long-term time horizon. That means you could keep more of your money by opting for tax relief on your withdrawals instead of as a lump-sum.

There could be inheritance tax benefits to keeping your money invested instead if taking the tax-free lump-sum. Your pension is passed on tax free if you die before the age of 75. If you take your tax-free lump sum, this will be counted as your estate and could mean a higher inheritance tax bill for your children or spouse.

Pension tax benefits: If you’re Self-employed

If you’re an employee of your own company, you may be able to make employer contributions into your personal pension.

Since pension contributions count as an allowable expense, you can deduct them when you’re calculating your business’ taxable profits. You don’t pay National Insurance on pension contributions either, so you could take a chunk off your tax bill by paying into your pension.

Make the most of the tax benefits available to you

When it feels like you’re giving more of your money to the taxman, it’s important you make the most of the generous tax benefits available to you. Forget any complicated investment strategies, these five simple tips can help your money go further, and maximise your returns.

]]>https://blog.moneyfarm.com/en/financial-planning/tax-freedom-day-top-tax-saving-tips-your-money-go-further/feed/0Moneyfarm raises £40 million in Series B funding round to drive next evolution in digital advicehttps://blog.moneyfarm.com/en/moneyfarm-news/moneyfarm-40-million-evolution-digital-advice/
Tue, 29 May 2018 07:10:50 +0000https://blog.moneyfarm.com/en/?p=6646

Moneyfarm has secured the largest Series B funding for a European digital wealth manager to date. The £40m investment will be used to further expand our vision through our advisory service – including goal based investing – products and investment proposition.

Moneyfarm continues to go from strength to strength. Today we’re pleased to announce that we’ve secured the largest funding round by a European digital wealth manager to date. The £40 million investment will be used to further expand our vision through our advisory service – including goal based investing – products and investment proposition.

The funding round was led by Allianz Asset Management, which has increased its minority stake in Moneyfarm after first investing in us in 2016.

Allianz is one of the five largest asset managers globally and a market-leading insurer. Our technical expertise and agility aligns well with Allianz’s key digital strategic pillar.

This is recognition from established financial businesses that technology is shifting the role of financial services away from being just a utility – and that this momentum is here to stay.

“Over the last few years, we’ve grown rapidly to become one of the largest digital wealth managers in Europe and one of the few to be successfully operating at scale in more than one country. We now have over 27,000 active investors,” said Giovanni Dapra, Moneyfarm CEO and Co-Founder.

“Today marks an exciting milestone for Moneyfarm as we look to expand our customer base through a focus on greater personalisation of the investment advice we give to help support and guide customers along their wealth journey.”

This combination of a strategic investor and venture capital/private equity is a unique and powerful mix for our customers. Following the launch of the Moneyfarm Pension earlier this year, we’re well placed to accelerate our growth as a financial services company through the expansion of our products and distribution.

“This capital will help bolster our product and investment advice offering as we explore integrating Goal-Based Investments. Adding an additional layer of personalisation means that individuals and families will be allocated portfolios that help them achieve their financial dreams, whether it’s a child’s higher-education or building a retirement nest-egg,” added Giovanni.

“We’re excited about incorporating more data points into the investment advice process so investments are catered to households as well as individuals’ investment needs.

Impressive track record for Moneyfarm

Since expanding into the UK in 2016, Moneyfarm has seen impressive growth. With over 27,000 active investors, assets under management has jumped by over 50% to £400 million over the last nine months.

Allianz has been attracted to the Moneyfarm business since before 2016, especially now it’s proven it can successfully scale-up its hybrid model in a different country.

Moneyfarm blends world-class technology with human expertise to make investment advice accessible to those who have been traditionally unable to invest, whether that’s because they lack the experience, are time-poor, or don’t want to pay the expensive fees of traditional financial advisors.

Moneyfarm is one of the few European digital wealth managers to provide regulated investment advice alongside low-cost ETF-based investments. When you register with Moneyfarm, we match you to an investment portfolio based on your investor profile, risk appetite and time horizon. We’re looking at expanding our suite of products in the near future.

“We can make our expertise in active investment management and risk-optimisation available to new client segments by combining it with Moneyfarm’s digital wealth management know-how,” said Thorsten Heymann, Global Head of Strategy, Allianz Global Investors. “Allianz’s investment in Moneyfarm increases our exposure to the rapidly growing market for digitally-enabled direct investment solutions.”

* Following today’s announcement, Moneyfarm have secured close to £60 million in capital

* Allianz Asset Management’s investment is subject to the regulatory approval process, which we expect to be complete by the start of Q3 2018

* FT Partners served as the exclusive strategic and financial advisor to Moneyfarm on their Series B

When you’re in your 50s, the somewhat distant concept of retirement finally comes into sight. Your priorities slowly shift back to you after decades of putting other people first, which means it’s the perfect time to make a pension plan to get the retirement you deserve.

Today, the idea of living to 100 has become more likely. Yet there are financial challenges of living to 100 that Brits need to prepare for, these include having enough to last over three decades and the legacy of wealth.

Traditionally, children inherit wealth from their parents. However, more people are giving their inheritance to their grandchildren, who are in their 20s and 30s, rather than their children who are nearing retirement themselves.

With 40% planning to follow this approach according to research from UBS, this new inheritance shift may force you to rethink your financial plans.

Play catch-up with your retirement income

When you’re in your fifties, your priorities should change as your children fly the nest, hopefully as financially independent as possible, you get closer to paying off your mortgage, and some of those common expenses come to an end.

Chances are, you probably wish you had saved more of your monthly pay cheques or started saving for your pension earlier. There’s no need to be intimidated though, your fifties is the perfect time to play catch-up.

It’s important to regularly review what you’ve got, where you want to be, and assess what you’re going to have to do to make up any shortfall. We have a handy Pension Calculator that can help you with this.

Yet with the average Brit working 11 jobs in their careers, it can be difficult to keep on top of all your pensions. If you don’t know exactly what you’ve got, it’s difficult to understand what you need to do to reach your retirement goals.

Consolidation is key

Instead of making life hard for yourself, consolidating your pensions under one roof can be an easy, hassle-free way to manage your pension more effectively.

It doesn’t need to be a difficult or stressful process. At Moneyfarm, all you need to do is print off a pension transfer form, fill it in and send it back to us.

We do everything else for you and we never charge a fee for people to transfer in or away from Moneyfarm. Make sure you check with your current provider though because there may be transfer charges their side.

What to do with extra money

As your regular expenses start to wind-down, you’ll have more opportunity to ramp-up your pension savings and turbo-charge your income for retirement.

Research from Saga Investment Services shows that once a mortgage has been repaid, the average monthly income of over 50s in the UK jumps by £322. (1)

This could be a welcome boost to savings for retirement. Saving £322 a month for one year would add over £3,800 to your pension pot. Do this for a decade and you could boost your pot by an extra £38,640.

Unfortunately, many Brits prefer spending this extra money on home improvements, a new car, or holidays. It’s certainly important to treat yourself, but don’t forget about the future you. Just 23% of over 50s put this extra money into their pension, although not the whole thing – just 40% of it on average.

Three investment plans to give you a good retirement income

Adding this extra money to your current contributions plan can really make the difference.

Moneyfarm has created three regular investment plans to help you save for a good retirement income. Popular with our investors, these plans are £400 a month, £800 a month and £1,600 a month.

By setting aside this much each month you could be on track to a comfortable retirement income in less time than you think! Even if you’ve left it too late, you can still grow your money for a good retirement, it will just take more of your monthly income.

Assuming 5% is your return, you can then look to withdraw 5% from your pension each year. Theoretically, you’ll never deplete the nominal value of your pension. That means that for an annual income of £25,000, you’ll need a pension pot worth £500,000. For £39,000 a year you’ll need £750,000.

If you’d started invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds in 1990 and continued to today, however, your money would have grown by an annualised 7.49%. We’ve assumed this rate of growth for our regular savings plans below, along with a more conservative 5% growth estimate.

These numbers also include an annual fee of 1% and include the impact of a 2% rate of inflation on the value of your savings pot.

Saving £400 a month for retirement

If you’re investing £400 a month, it’ll take you 36 years to build up a pension pot worth £500,000, which will give you an income of £25,000 a year, assuming 7.5% annualised growth. It’ll take you 43 years to build up a £750,000 pension pot, which means you’ll need to start early.

Saving £800 a month for retirement

It’ll take you 24 years to grow a £500,000 pension pot when investing £800 a month, whereas it’ll take 31 years if you want £750,000.

Saving £1,600 a month for retirement

If you can afford to put away £1,600 a month you’ll feel the benefit. It’ll take you just 15 years to build a savings pot worth £500,000 and only 20 years for a £39,000 pension pot. An extra £320 a month would really help here.

There are many benefits to saving in a personal pension, with one of the largest being the generous tax benefits.These numbers include the 25% boost you’ll get from the government in the form of the basic tax relief.

Five things to think about when building a pension portfolio in your 50s

Investing for your retirement in your 50s can be simple, just follow these following five steps:

Invest regularly

Set up a direct debit for hassle-free investing that can maximise your returns through pound cost averaging

Make the most of your tax relief

You can claim tax relief relative to your income tax band. At Moneyfarm you can get the basic rate of tax relief automatically added to your pension contribution, taking an £8,000 pension contribution into a £10,000 one – for example.

If you fall into the higher or additional tax band, you can claim the extra tax relief through your annual tax return.

Investment advice

Investing takes time, skill and knowledge to successfully do yourself, especially when it comes to managing your investments for your retirement. Many people feel locked out of the traditional wealth management industry due to its high management fees and jargon, but investors can now get investment advice at good value. This means the hardest thing you have to do is choose how much you want to invest and how often, Moneyfarm does the rest for you.

Target Date

As you near retirement and as your priorities change, you’ll need different things from your investments. When you match with a Moneyfarm Pension, the investments will automatically adjust as you get nearer to retirement to ensure it continues to reflect you and your needs.

Time

Although you’ll have ideally started saving for your retirement early, it’s never too late to start implementing a pension plan for your retirement income. When you’re in your 50s, you’ve still got around 15 years to prepare for your future, which can make a real difference.

You can now keep your pension invested during retirement thanks to changes to pension freedoms. This means you can expect your money to continue growing whilst you’re enjoying your retirement.

The state pension triple lock aims to protect Brits and the income they get from the government throughout retirement. Unfortunately, this is an expensive guarantee that’s become a political football in recent elections, and Brits should be wary of relying on it for a comfortable retirement.

How much is the state pension?

Once you hit state pension age, you’ll be eligible to get income from the government to help see you through retirement –as long as you’ve contributed to national insurance for 30 years.

You’ll get £164.35 a week from the state pension, unless you reached the pension age before 6 April 2016, which means you’ll get the old state pension of £125.95 a week.

What is the state pension triple lock?

The new state pension increases each year by either UK wage growth, inflation, or 2.5%, whichever is higher. This guarantee on both the basic and new state pension is known as the state pension triple lock.

Introduced by the Conservative and Liberal Democrat coalition, the triple-lock promise aims to protect pensioners from the impact of inflation. In theory, this means you’ll still be able to buy the same amount of goods with your state pension income over the years.

It also aims to avoid negligible ad-hoc increases to the state pension, instead offering Brits reliability into their retirement.

Retirement can be a nervous time, as you wave goodbye to a reliable income and look to the state to supplement your diligent pension savings.

Having the reassurance that the value of your income won’t be eroded by inflation is important in helping reduce money worries ahead of retirement.

Is the state pension triple lock guaranteed?

As with most pension initiatives, the state pension triple lock costs the government a lot of money to honour. In fact, it adds around £6 billion a year to the state pension bill, according to the Government Actuary’s Department.

This has forced the government to try and look for an affordable alternative. Some have suggested reducing it to a double lock, by dumping the link to either inflation or 2.5%.

Without this crucial link to inflation, however, the purchasing power of pensioner’s income could take a hit if the rate of price growth races ahead of average earnings of 2.5%.

Although the government has stepped back from its pledge to introduce the double lock by 2020, the future of the UK pensions system is still uncertain.

Relying on the state pension triple lock

Few would advise Brits looking forward to their retirement to rely on the state pension. If you reached state pension age before April 2016 you’ll have just £6,500 a year, otherwise you’ll have £8,500 a year.

You’re unlikely to be able to rely on this to cover what you need for a comfortable retirement. Instead, you should look to build up a pension pot that will provide you with a good income that your state pension can supplement.

Find out more about how the Moneyfarm Pension can help you achieve your retirement dreams

Take advantage of the tax benefits

The government desperately wants you to save for retirement, which is why there are generous tax incentives for you to take advantage of.

When contributing into your personal pension, you can claim tax relief relative to your income tax band. This means that if you’re a basic rate tax payer, you can pay in £8,000 and the government will give you a £2,000 top-up, taking your overall contribution to £10,000.

This basic rate tax relief is given to investors automatically, but don’t forget that you can claim back more if you’re a higher or additional rate taxpayer. If you’re a higher rate taxpayer you’ll essentially be paying £6,000 for a £10,000 contribution, or just £5,500 if you’re in the additional rate tax band.

Make sure you claim for this in your annual tax return to ensure you don’t miss out on any valuable tax relief that could help you maximise your pension savings further.

How much should you be saving each month for retirement?

When it comes to saving for your pension, the earlier you start and the more you can put away each month the better. But it’s important you know you’re on track to achieve the retirement you deserve.

It’s generally thought that you’ll need two-thirds of your final income in retirement to maintain your standard of living. If you’ve been waiting for the chance to jetset and want the freedom to update your car every five years, you’ll probably need around £39,000 a year.

Moneyfarm research shows that if you’d invested in a globally diversified portfolio split 60/40 equities/bonds over the last 30 years, you’d have seen an annualised return of 7.5%.

The FCA says it’s reasonable to expect your pension to grow by an annualised 2%, 5%, or 8%, depending on your risk level and time horizon. The longer you have and the more risk you can take, the higher your expected long-term return – although the value of your investments can also fall.

If you keep your pension invested throughout your retirement and expect your pot to grow by an annualised 5%, you can – in theory – withdraw 5% of your pension each year without materially depleting the size of your pension.

It goes without saying that the sooner you start and the more you can put away each month, the less of a financial burden saving into your pension will be later in life. Find out how long it will take you to get a good retirement income with Moneyfarm’s regular investment plans.

Can you protect your pension from inflation?

Thanks to Pensions Freedoms, you can now look to protect your money from the impact of inflation and even aim to grow it during your retirement.

With people living longer, retirement can easily last three decades for many Brits. This is a long time horizon when investing, which means Brits could be missing out on maximising their savings by not keeping their money invested.

Brits no longer have to swap their pension for an annuity once they reach retirement. Annuities are good for those wanting a reliable income, but they can offer negligible returns.

Instead, flexi-access drawdown allows investors to keep their money invested in the stock market whilst they withdraw their pension income from it. You can still get 25% as a tax-free lump sum from the age of 55 – pension freedoms just gives you more options with what to do with it.

By keeping your money invested, you can look to offset your money and grow it for your hopefully long and happy retirement.

With flexi-access drawdown, once your pension has gone, it’s gone. You’ll have to be more disciplined and aware of your spending habits, but the flexibility now available to Brits in retirement means you’re put back in the driving seat at a time when you can truly put yourself first.

Today we’re really excited to launch the Moneyfarm Pension. After months of hard work across the business, we’re proud to be the first robo advisor in the UK to offer advice with a target date product.

We hope the Moneyfarm Pension will empower individuals to make the right decisions with their wealth to ensure financial security in retirement through the benefit of easy transfers, simplicity and low-cost investment advice.

The Moneyfarm Pension, which is available to both new and existing customers, provides consolidation of existing investments with a quick, easy and managed transfer process.

Consolidating your pensions into one place is a powerful tool to help you understand what you’ve already got in your pension pot and whether you need to put another plan in place to help you reach your retirement goals.

With Moneyfarm research showing that a third of Brits feel totally unprepared for the future, nearly half of the population claim that everyday responsibilities are the biggest barrier to attaining their long-term goals.

With the average Brit working 11 jobs in their career, it can be difficult keeping on top of your pension savings which can exacerbate this feeling of unpreparedness for the future.

The world-class technology that sits behind the pension product allows us to bring a more personalised pension solution to those that have been locked out of the traditional wealth management space due to the numerous barriers to entry.

The only digital wealth manager in the UK to offer advice with a target date product, this functionality allows customers to set a self-determined retirement date and as it approaches, the portfolio asset allocation will adjust to ensure suitability right up until investors want to draw from their pension. We’ll do this for you, leaving you to focus on the important things in life.

CEO and Co-Founder of Moneyfarm, Giovanni Daprà says, “Investing in a personal pension ensures greater security for an individual or family’s future. By asking customers to set a date for their retirement, we can provide more personalised automated financial advice through our digital platform andencourage future planning and money mindfulness as part of everyday life.

“Ultimately, individuals can now take charge of their own retirement, which is simple to setup, monitor and manage.”

Investment advice

After getting to know about you and your financial background, Moneyfarm will match you to an investment portfolio that’s built and managed by our team of investment experts to reflect your investor profile, time horizon and retirement goals – just like our investment products.

Technology helps us deliver a better quality of service to our investors at a lower cost, however we also rely on irreplaceable human expertise. Unlike other SIPPs, this human expertise comes as standard.

“With over half of Britons kept awake at night thinking about future plans, pensions can often seem like a bit of a black hole, where you don’t really know what’s happening with your money until you hit retirement.” adds Giovanni.

“At Moneyfarm, we’re passionate about decoding the investment industry. Customers will be able to see exactly where their money is invested and how it’s performing all at the touch of a button, for maximum benefit when the time comes.”

Generous tax benefits to the Moneyfarm Pension

There are generous tax benefits to investing in the Moneyfarm Pension. You can claim tax relief relative to your income tax band. So if you want to put £10,000 in your pension and are a basic rate taxpayer, you’ll only need to put in £8,000, the government will pay the rest.

You can claim back 40% if you’re a higher rate taxpayer, which means you’ll only need to put in £6,000 for a £10,000 contribution.

To avoid a delay in customers receiving tax relief from HMRC, Moneyfarm takes on the up-front cost of basic rate income tax relief for all of its investors. As a result, investors can enjoy the added benefit of additional compound returns.

If you’re a higher or additional rate taxpayer, you’ll need to fill in your tax return form to claim your further relief. Self-employed investors can contribute to their pension from their pre-tax income by setting up employer contributions for an increased long-term benefit.

You can also take 25% of your pension pot tax-free when you get to the age of 55, but you’ll pay usual rates of income tax on the remainder. After pension freedoms, you have more choice over what you do with your savings and you’re no longer required to buy a guaranteed income stream in the form of an annuity.

Unlike some pension products, flexi-access drawdown is a standard feature of the new pension product and will become automated soon after launch. This will provide investors with the freedom to manage their retirement income according to their needs.

Income drawdown gives you a more flexible approach to your income during retirement. By keeping your savings invested in the market, you can dip into your money as you like.

By keeping your pension invested, you’re hoping your money will continue to grow in value to help offset the impact of inflation – although it can fall in value too. There are different charges and you should always shop around to make sure you get the best deal for you and your family.

Start investing for the future you today by setting up a Moneyfarm Pension. You can also book a call to speak to our of our qualified investment consultants about setting up your pension today.

A surge in support for populist parties and right-wing policies has led Italy into a hung parliament. Moneyfarm looks at the possible outcomes of the Italian election and the impact this could have on markets.

A surge in support for populist parties and right-wing policies has led Italy into a hung parliament and has put leader of the Democratic Party, Matteo Renzi, under pressure to resign. Italy is now likely to endure uncertainty whilst a government is formed.

Here, Moneyfarm looks at the possible outcomes of the Italian election and the impact this could have on markets.

Whilst no single party won enough votes to form a government in the Italian elections – as expected – it was populism that emerged the clear winner, with over 50% of voters marking a cross by the names of populist parties with a history of anti-EU rhetoric in the booths.

Five Star Movement shines

It was the Five Star Movement that shone the brightest with Italian voters, with the party securing 32% of the vote. Founded by comedian Beppe Grillo but with Luigi Di Maio now at the helm, Five Star has been the most popular party since 2017.

Di Maio has harnessed discontent towards the establishment into the party, proposing a minimum monthly income of €780, raising the budget deficit, make early retirement easier and raising taxes on energy companies.

He’d initially been against forming a coalition. As the party gained momentum and edged closer to power, the leader seemed more willing to join forces to take advantage of this once in a lifetime opportunity.

With three-quarters of the vote counted, the centre-right coalition fronted by Silvio Berlusconi was within an inch of getting an absolute majority of seats with 37%. The coalition had been stitched together with his own party, Forza Italia, anti-immigrant and anti-euro Northern League, and two smaller right-wing parties, including Brothers of Italy.

Forza Italia was keen to abolish housing, inheritance and road tax, doubling the minimum pension, and introduce a minimum €1,000 a month income. Policy also included blocking new immigrant arrivals.

There was a shift of power in the coalition on election day, however, with the League winning more votes than Forza Italia to become the largest conservative party in Italy. This would make it difficult to form a German-style coalition with the Democratic party – an option initially considered by pundits.

Led by Matteo Salvini, the League wanted to introduce a flat tax of 15% for all, allow for earlier retirement, and repatriate 100,000 illegal immigrants a year.

Matteo Renzi, of the centre-left Democratic party, is under pressure to resign after suffering a humiliating defeat in the election, which now opens up the opportunity for the Democratic Party to work alongside with the Five Star movement.

The Democratic party had initially hoped to be at the centre of coalition talks, but after haemorrhaging support, its negotiating power has weakened significantly.

With Italy turning its back from the establishment, this is a severe blow for the EU from one of its founding members and the third largest economy within it.

Whilst Italy has been a staunch supporter of the bloc over the years, more than half of voters picked Eurosceptic parties, which will be a concern for supporters of the union – especially as France’s Emmanuel Macron and the newly formed German coalition push for European integration.

What next for Italian politics?

This hung parliament won’t come as a surprise for many who have watched the Italian elections unfold. Italy’s seen around 90 governments since the start of the 20th century, so uncertainty is something they’re accustomed to.

Here are four scenarios that could play out and their potential impact on the market. President Sergio Mattarella will manage the forming of a government. Although he will likely try to avoid both the third and fourth outcomes, the constitutional figure holds no veto power.

Centre-right coalition with some extra external support

It’s hard to predict how the markets will react to a centre-right coalition, but they might be protected by the label ‘centre right’. With the Northern league now able to throw its weight around a bit more, the markets might begin to react negatively later down the line – especially if they take a harsh euro-sceptic position.

Five Star Movement government – supported by Democratic Party

This could be the most puzzling yet progressive outcome. Markets may translate this to mean that Five Star may not dramatically change the course of government. It would mean that the government would be skewed to Five Star’s political agenda, although it’s still slightly unclear what this is.

Populist outcome – Five Star Movement with The League

The markets will see this unprecedented coalition as a worst case scenario, that has the real potential to rip up the government rule book. This outcome could spell a difficult time for markets.

Italy will go back to the polls

If Italy can’t form a coalition, a temporary placeholder government may be responsible for changing the electoral process again, before another election. The markets have already priced this in, so would not be taken by complete surprise if this turns into reality. It’s not the first time this has happened in Europe, and it might not be such bad news for markets as you might expect.

Italy’s changing electoral system

Italy has made three big changes to its electoral system over the last quarter of a century, but it seems the latest edit had many Italian’s scratching their heads at the polls.

The new Rosatellum system was introduced in 2017 after the previous electoral process was deemed unconstitutional, however many have criticised it for actively trying to stop the Five Star Movement from getting into power with its first past the post element.

In this election, 61% of the seats will be awarded by national proportional representation – that’s 193 seats in the upper house and 386 in the lower house. Around 37% of the seats will be elected under a ‘first past the post’ system by single-member constituencies – this equates to 116 in the upper house and 232 in the lower house.

Those Italians living abroad will elect 12 seats in the lower house and six in the upper – around 2%.

All parties must meet the 3% threshold to be represented in the proportional seats. If a party fails to break the threshold and is linked to a larger party, these votes will be transferred.

Voters got two slips, one for each house, and were required to put a cross on each.

How have markets reacted to Italian election result?

In early trading, the strongest reaction was seen in the spread between Italian and German bonds, which jumped 10 basis points to 1.41%. Whilst the euro initially strengthened on news from Italy, it unwound again as the Italian election results start to come in.

In times of political uncertainty, a strategy that focussed on spreading risk across regions can do well. By diversifying your investments you hope to offset any short-term fluctuations with gains made elsewhere.

It’s often thought that cash accounts are the safest way to build up savings, as they aren’t exposed to the ups and downs of the financial markets. Yet savers leave themselves exposed to the silent threat of inflation instead, which erodes the value of your money over time.

Imagine you put your £100,000 straight into a cash ISA with a return of 1.1%. After one year you would have £101,100. If the Bank of England managed to keep inflation to its 2% target – inflation has been above this for some time – the value of the initial £100,000 would have fallen to £98,000.

This means you would have needed to earn £2,000 just to retain the purchasing power of your money. You’d have needed even more to see it grow.

That’s why more savers are looking to the financial markets to protect their money and grow it for the future.

Before you start investing it’s important you’ve paid off any expensive debt and saved the equivalent of at least three months of your outgoings in an easily accessible cash account in case of an emergency.

Where to put £100,000 for the best return

By understanding what you’re saving for, when you’ll want your money, your personality and financial background, you’re able to build a portfolio that’s suitable for you and your goals.

This information makes up your investor profile, which should influence the way you invest and the makeup of your portfolio.

No matter whether it’s a healthy eating and fitness targets, your dream career path or financial goals, the more suitable and personal a plan is to you, the more likely you’ll achieve it.

Your investor profile will essentially outline your attitude to risk. The riskier your investments are, the higher the return you can expect – although the further your investments also have to fall.

If you prioritise protecting the value of your money from inflation, you’ll sacrifice the potential for blockbuster returns over steady income and reliable growth. The more risk-averse investors will have a high exposure to bonds in their portfolio, whilst those who are after bigger returns will have a preference for equities.

It’s important investors’ portfolios reflect them. Investors could be missing out on essential growth if their portfolio is too safe, whilst a nervous investor who has a tendency to sell at the first sight of losses could quickly end up out of pocket.

How risky am I?

The longer you have to invest, the more risk you can take with your money, which means the higher the return you can expect.

If you have a short-term time frame, you might not have enough time for your investments to recover from any short-term fluctuations should they arise. If you’ll need your money in less than 12 months, investing might not be the best way to protect your money.

Longer time frames also encourage you to ride out any short-term volatility, and avoid any potentially painful poorly timed trades. If you’re investing over a short time frame or are a nervous investor, you might be tempted to react quickly to any losses you see in your portfolio to protect yourself from any significant falls.

But trying to catch a falling knife can be painful, and you can end up missing out on the recovery, which can seriously weigh on returns.

Should I save into a Pension or an ISA?

Chances are, you probably don’t feel as confident as you might like about your financial security in retirement. Don’t worry, you’re not alone. Putting this £100,000 towards your pension could really help to take back control when it comes to your financial future.

How much you’ll need for your retirement depends on how you want to spend your time after you’ve waved goodbye to the rush hour commute – although it’s generally thought you need two-thirds of your final salary to maintain your standard of living.

If you want £26,000 a year, you’re going to need a pension pot of at least £520,000 when you retire. If you want more luxuries including long haul flights, you’re going to need £39,000, which is at least £750,000.

There are generous tax benefits to investing in a pension, as you can claim back tax relief relative to your income tax band. This means a basic rate taxpayer essentially pays £8,000 for a £10,000 pension contribution. If you’re a higher or additional rate taxpayer you can claim back even more through HMRC.

You can only put up to £40,000 in your pension each year, however, or the equivalent of your annual salary – whichever is lower. If you’re able to invest the full annual allowance, this still means you have £60,000 to play with.

Stocks and shares ISAs are more flexible than pension products, as you can deposit and withdraw from your ISA numerous times in the year without it impacting your annual allowance.

As the ISA allowance resets annually, you can continue to top up your ISA at the beginning of each new tax year. It’s better to use your allowance as early as possible, as time is powerful when investing.

Not only does it mean your money is invested in the market for longer, but you can also maximise your returns with compound interest – when your returns are reinvested and earn their own returns.

Top tips to invest £100,000

When it comes to building your portfolio in line with your attitude to risk, it’s important to manage the risk in your portfolio. One way to do this is through diversification.

By spreading your money across investments, asset classes and geographies, you hope to offset any short-term fluctuations with gains made elsewhere in your portfolio.

Diversification sounds simple, but it’s difficult and expensive to get right yourself, which is why many prefer experts to do it for them.

When it comes to investing your £100,000, follow these five simple tips to maximise your returns.

In the UK, Brits are struggling to save for their future, yet the average man retires with a pension pot worth five times more than their female friends, research shows. This disparity has serious consequences for the financial security of women in their retirement.

Moneyfarm research highlights that a third of people in the UK feel totally unprepared for the future or try not to think about their financial wellbeing at all.

This problem is exacerbated amongst women, who are 50% more likely to feel unprepared for the future financially than men.

The gender pay gap

A number of reasons are behind this complex problem, including the gender pay gap and the higher proportion of women in part-time work or juggling multiple jobs.

Women and men are likely to earn the same in their 20s, but by the time they reach their 40s, women should expect to earn 13% less than men, which widens to 16% by their 50s, research from the Chartered Insurance Institute (CII) shows.

It goes without saying that the less money you have in the first place, the less you will be able to save – no matter your spending habits.

Financial confidence

There are also more pronounced issues around financial knowledge, understanding and confidence amongst women. This trend surfaces early on in life, despite girls and young women outperforming boys and young men in early education.

More than half of women in their 20s say they don’t understand enough about the pensions landscape to make a retirement savings plan, compared to 38% of men, CII reports. On average, men are likely to have 60% more money saved up in their 30s.

Again, it’s important to highlight how issues around financial security and saving for retirement are exacerbated in women but are still prevalent with men.

Saving for the future shouldn’t be difficult

Saving for your future shouldn’t be complicated, but for many it is. The simple volume of options available to consumers just trying to protect their money and grow it for the future can be off putting. The jargon can complicate things further.

People who feel out of their depth financially can also avoid looking to plan for the future to protect themselves in the short-term. The good news is that if you start early, saving for your pension doesn’t need to be a heavy burden.

To maintain your standard of living in retirement, it’s generally thought that you need to have an income worth two-thirds of your final salary. After all, you won’t be paying to commute, you’ll hopefully have paid off the mortgage and your kids should – in theory – be independent.

A comfortable retirement with a few of life’s luxuries here and there will require around £26,000 a year. If you’ve been eyeing up some long-haul holidays and a new car every five years, you’d better make that £39,000.²

For a gross income of £26,000, you’re going to need a pension pot worth a minimum of £520,000 – assuming you’ll have no state pension. You’re going to need £750,000 for £39,000 a year.

There’s logic behind this. It’s reasonable to expect an average annualised return of around 5% from a balanced and diversified portfolio. If you look to withdraw 5% a year, you’ll avoid depleting the nominal value of your pension over time.

How much do I need to save a month?

Whilst the headline figures are big, the earlier you start the less of an impact this will have on your monthly income.

A couple in their 20s will need to save £131 a month for a £26,000 annual income, which increases to £198 a month if you leave it to your 30s.

Leave it any later and the costs really start to rise, with a couple in their 40s having to save £338 a month and those in their 50s saving £633.

Five tips to boost your pension pot

We firmly believe that men and women should be given the same opportunities when it comes to saving for their future, but there are some simple ways everyone can maximise their savings pot.

After all, after years of sacrifice, you want to know you can enjoy your retirement by doing the things you’ve always dreamed of – whether that’s fishing in the Highlands, making costumes for your grandchildren or travelling the world.

The earlier you start the better

The earlier you start the less of a burden your pension savings will be on your monthly budget. Still, it’s never the wrong time to start saving for your future. Whether you’re just starting to save for your retirement, want to supplement a workplace scheme, or want to increase your contributions, the more you can give today the more your future self will thank you.

Work out your budget and try to stick to it

Take the time to understand where you are and where you want to be. Then work out what it’s going to take to get there and set a target for yourself. The more realistic it is, the more you will probably be able to save over the long-term. But be honest with yourself, if you get a bonus or pay rise and think you should increase your contributions, do it.

Make the most of your tax relief

Pension savers are rewarded by the government for planning for the future with generous tax relief. You can get tax relief on your contributions relative to your tax band. If you pay 20% tax, you essentially pay £8,000 for an overall £10,000 contribution. If you’re a higher rate or additional rate taxpayer you can claim back more, don’t forget to claim for it from HMRC.

Supplement your retirement savings with an ISA

Pension savers can only save £40,000 in their pension each year, or the value of their salary – whichever is lower. If you have money sitting around that you want to put to work for your future, look to maximise your returns with a stocks and shares ISA. You can invest up to £20,000 a year and any growth in the value of your investments and any income can grow tax-free. ISAs also more flexible than a pension.

Keep management and platform costs low

After sacrificing that extra dinner with friends and talking yourself out of buying that new top, you don’t want to see your returns eaten into by expensive or surprise platform fees. Make sure you know exactly what you’ll be paying in fees and charges before you start investing, as this can seriously dent your returns over the long-term.

Life is all about balance, whether it’s treating yourself to a pizza, a couple of drinks down the pub, or saving for your future. When you’ve got competing priorities, putting money aside for your retirement can be difficult, which is why you should know of an easy way to boost your savings by 25%.

Maximise your savings with tax relief

For example, if you’re charged the basic tax rate, you’ll only need to pay £8,000 into your pension for a £10,000 contribution. This tax incentive is a real draw to saving for your future, as it essentially gives your savings a 25% boost.

The government tops up your contribution with the £250 they assume you paid in tax when you got paid, which is equivalent to 25% of your net savings.

If you’re a higher rate or additional rate taxpayer, you can claim back even more through your annual tax return.

This is equivalent to a higher rate taxpayer paying £6,000 for a £10,000 contribution and an additional rate taxpayer paying just £5,500 – although the additional relief is reflected in your tax band and isn’t process like your basic rate tax relief.

Income tax in retirement

There are other tax incentives to saving in a personal pension. Once you get to the age of 55, you can withdraw 25% as a lump sum tax free. You’re then charged income tax on the rest.

In retirement you won’t be earning as much as you did in employment, and you might slip from the higher rate tax band to basic. This means that whilst you got 40% tax relief on your pension contributions, you’ll only pay 20% in income tax when you draw from your savings in retirement.

If you don’t want to take a lump sum, you can get a quarter of each withdrawal tax free, and pay income tax on the remainder.

What are your retirement goals?

The generous tax incentives make saving in a personal pension attractive, but it can be difficult knowing how to make your money work harder for you to secure your financial wellness in the future.

Life is personal, which means the way you save should be too. We all have different retirement dreams, whether its fishing in the Highlands, knitting clothes for your grandchildren, or travelling the world.

Understanding your investor profile is one of the first steps to achieving your financial goals. Your investor profile acts as your investor DNA by taking what your saving for, when you’ll want your money and your financial background, and using this to influence what you invest in.

Your portfolio should reflect your investor profile to get you a step closer to your financial goals.

How much will I need for retirement?

It’s generally thought that you can maintain your standard of living when you retire with two-thirds of your final salary – you won’t have to pay for commuting, work clothes, you’ll probably have paid off the mortgage and your children will hopefully be independent by then.

That’s around £26,000 a year if you want to comfortably afford the essentials and a few luxuries along the way – you’ll be able to eat out and afford a European getaway every six months the research from consumer research group Which? shows.

If you want to have an income of £26,000 a year gross, and assuming you will have no state pension income, you’re going to need a pension pot worth a minimum of £520,000.

The logic behind this is that from a balanced and diversified portfolio, it’s reasonable to expect an average annualised return of around 5% over the long term. Assuming this is your return, if you withdraw up to the same 5% each year, you’ll never deplete the nominal value of your pension over time.

If you’ve been planning to travel more during your retirement and want to treat yourself to a new car every five years, you’re going to need around £39,000 a year. Remember, as you get older your priorities will change, and you’ll probably have to swap jet-setting for better life insurance.

For an annual income of £39,000, you’ll need at least £780,000 when you retire if you want to withdraw 5%. If you’re a bit more conservative over your expected returns and want to withdraw 4% a year, you’ll need a pension pot worth at least £973,500.

When should I start saving for retirement?

The earlier you start the better. It’s as simple as that.

Not only will you have longer to build up your savings and have to sacrifice less of your monthly earnings, but you’ll also be able to benefit from compounding – one of the most powerful forces when investing.

This is when the returns you generate on your investments are reinvested and then earn their own returns and can make a real difference over the long term.

Ideally you’ll start saving as soon as you’re working, but it’s difficult to put money away for the future when you’ve got a low income. But the benefits of starting early are easy to see.

How much do I need to save for retirement?

A couple in their 20s who want to have an annual income of £26,000 during retirement will need to put away £131 a month, although this creeps up to £198 a month if you leave it to your 30s.

Leave it any later and the costs begin to get a bit more daunting. A couple in their 40s will have to ring-fence £338 a month, whilst those in their 50s will have to save £633 a month.

You’re going to need to be a bit more organised if you want to have £39,000 a year – otherwise you’re going to find a serious hole in your pocket trying to save for this goal later in life.

Couples will need to put away £342 every month in their 20s if they are after the retirement highlife, £424 a month in their 30s, £731 each in their 40s and a whopping £1,657 a month in their 50s.

Are there any limits to how much I can save in my pension?

There are limits to how much you can save towards your pension to ensure the scheme is as sustainable as possible. You can only put £40,000 or your annual salary, whichever is lower, into your pension each year.

If you find yourself maximising your pension contributions, it might be wise to look at other tax-efficient alternatives that are more flexible and can provide you with an income throughout retirement, like an ISA.

You can put up to £20,000 in your stocks and shares ISA each tax year, and any increase in the value of your investments or income can grow tax free for as long as it’s protected in the wrapper.

You can deposit and withdraw from your ISA throughout the year without this affecting your annual allowance, although it’s a case of use it or lose it, as you can’t roll the allowance over into the new tax year.

Trends Forecaster Jonathan Openshaw takes a look at how the modern phenomenon of short-termism affects all parts of society. In our Decodes: Short-termism research, he looks at whether it impacts our ability to be present in decision-making for our future.

‘Short-termism affects all parts of society, it’s economic, social and cultural. Systemically, the economy is wedded to short-termist delivery. What you’re demanding from people and teaching people to do as business professionals is deliver on the short-term and sacrifice on the long-term.

‘A lot of things that happen around digital culture are incredibly seductive. This mentality has allowed us to build these business models that are based on the transience. A really telling statistic is that in the 1960s, the average amount of time for a stock to be held in a company was eight years. In 2016, it was eight months.’

Jonathan Openshaw is a writer, editor, lecturer and author specialising in the consumer industries, with a focus on technology, luxury and retail. Jonathan works for Soho House group, where he’s an in-house editorial consultant, and Mr Porter, where he writes a monthly column on the future of the workplace. Formerly the editorial director of trends forecasting business, The Future Laboratory, and business editor of Monocle magazine, he has a first-class degree in Social Anthropology from the University of Cambridge.

Life Coach Fiona Buckland believes volume of choice impacts our ability to make long-term decisions as our brains haven’t evolved to decipher this complexity. As part of our Decodes: Short-termism research, she believes taking the time for financial planning can lead to freedom.

‘One thing as human beings that we’re just not very good at is uncertainty. I believe there is a correlation between the volume of choice that we have and our ability to make long-term decisions. Confusion sets in and we’re not used to having so many choices. Our brains haven’t evolved to process this complexity, so people have this analysis paralysis where they don’t move forward because they’ve analysed everything to death.

‘You’ve got this cognitive popcorn that goes on; we’re constantly pulled into very short-term activities and it’s very difficult now to focus to sit back and have that self reflection time just to focus on what you need and what your future is going to look like. Financial planning is a short-term act in itself, and the long-term gift of it is freedom.’

Fiona Buckland has worked in both the UK and US, including key strategic roles in publishing, where she worked with thought- leaders from the worlds of psychology, neuroscience, behavioural science, history and culture. She is a Faculty Member and regular speaker at The School of Life.

‘Good intentions rarely turn into real actions, because of short-termism and the temptations we face on a daily basis. We cannot really control this so-called automatic systems in our brain, because during our history and evolution if you avoid consuming immediate rewards you might not find payoffs later on. So there’s kind of a tendency or bias towards immediate gratification.

‘Are you like an omnipotent computer similar to Gordon Gekko from Wall Street who is able to stick to his long-term plans in the future and calculate the best course of action or are you more like Homer Simpson victim of his emotional and human brain? 70-80% of our everyday behaviour is run by habits from the automatic brain because it’s very efficient way to run our lives on autopilot.

‘There is a huge savings gap in modern society especially in the United Kingdom. The evidence shows that only one in 10 of us saves enough for retirement – which is around 18% of our income. The ageing population is the curse of moral society; we need income and the state is unable to support this. We definitely need long-term planning in place and to stick to these plans so we’re able to survive comfortably until dying age.’

Behavioural Scientist Ivo Vlaev joined Warwick Business School as a professor of Behavioural Science in 2014. Professor Vlaev received his doctorate (D.Phil.) in Experimental Psychology from the University of Oxford and St. John’s College. He was formerly a Research Fellow at University College London and a Senior Lecturer in Behavioural Sciences at Imperial College London. In 2010, Professor Vlaev co-authored the Mindspace report published by the UK Cabinet Office, advising local and national policymakers on how to effectively use behavioural insights.

In her Decodes: Short-termism feature video, Lucy explains how becoming a mother helped shift her attitude to the future, and how she is very different to her friends when it comes to money.

‘Once you become a parent your attitude changes because now you know that there’s someone who needs to be provided for in your absence. There’s no there’s no greater spurt of ambition than that. I’m completely untypical when it comes to future planning in contrast to my friends and colleagues, because I’ve been so worried from such a young age – I’m such a bizarrely natural saver.

‘Even among my closest friends, who I have so much in common with, when it comes to money and financial planning it just seems to be a closed world to them. It’s not rocket science. Short-termism at any time is a perfectly rational human response. We are here to enjoy ourselves, that’s what makes life worth living. What we also need to do is factor in some long-termism, so our lives can continue to be fun and happy and provided for. That’s the bit that gets tricky.’

Lucy Mangan is an author, columnist, features writer and TV critic, as well as being the author of Hopscotch & Handbags: the truth about being a girl. In her latest release, Bookworm, she revisits her childhood reading, our best-loved books, and the subtle ways they shape our lives. Lucy is a University of Cambridge alumna with a strong understanding of modern lifestyles, parenting and our professional lives.